Market Overview

Demand For International ETFs Remains Strong

Demand For International ETFs Remains Strong

One of the more notable themes in the world of exchange-traded funds last year was investors affinity for international equity funds. When 2017 drew to a close, five of the year's top 10 asset-gathering ETFs were international equity funds. Three of those five funds were ex-US developed markets funds while the other two were emerging markets plays.

That theme is continuing in 2018. Year-to-date, five of the top 10 asset-gathering ETFs are international funds, including the top two asset gatherers. With few exceptions, most of the international ETFs investors are flocking to are among the most inexpensive funds in their respective categories.

“Indeed, developed and diversified international equity funds pulled in $20 billion, while emerging market diversified funds gathered $13 billion, according to Bloomberg data,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a Tuesday note. “While the trend toward these styles was favorable, it is important to understand that they are not constructed in the same way.”

Where The Cash Is Going

The iShares Core MSCI EAFE ETF (CBOE:IEFA) remains a fixture atop the asset-gathering leaderboard. As of April 9, investors had added $14.79 billion to IEFA on a year-to-date basis. That's more than double the sum allocated to the second-best asset-gathering ETF, IEFA's emerging markets counterpart, the iShares Core MSCI Emerging Markets ETF (NYSE: IEMG).

Jaw-dropping flows to IEFA aren't new. Last year, the ETF was the second-best adder of new assets among all US-listed ETFs as investors poured $20.87 billion into the fund.

IEFA “earns a top rating from CFRA for the risk considerations of its holdings and its modest cost factors, including an 0.08 percent expense ratio and a $0.01 bid/ask spread,” said Rosenbluth.

This year, it appears some investors are opting for the less expensive IEFA over its older, pricier stablemate, the iShares MSCI EAFE ETF (NYSE: EFA). While EFA has an assets under management lead of more than $21 billion over IEFA, the former has bled $6.65 billion in assets this year. EFA's annual fee is 0.32 percent, or four times that of IEFA.

Plenty Of Competition

IEFA isn't the only low fee developed markets ETF on the block. The Vanguard FTSE Developed Markets ETF (NYSE: VEA) has an annual expense ratio of 0.07 percent, making it cheaper than 93 percent of rival funds.

Investors have added $3.20 billion to VEA this year after allocating $17.46 billion to the fund last year. As Rosenbluth points out, VEA features exposure to Canadian and South Korean stocks, which aren't found in the rival IEFA.

CFRA has Overweight ratings on IEFA and VEA.

Disclosure: The author owns shares of VEA.

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