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A Broad Emerging Markets ETF With A Modest Fee

April 23, 2019 2:00 pm
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iShares, the world's largest issuer of exchange traded funds, late in 2012 created a suite of so-called core products aimed at buy-and-hold investors.

One of the funds included in that group was the iShares Core MSCI Emerging Markets ETF (NYSE:IEMG), which was created a cost-friendly alternative to the iShares MSCI Emerging Markets Index ETF (NYSE:EEM).

What Happened

IEMG costs 0.14 percent per year, or $14 on a $10,000 investment. Just three U.S.-listed emerging markets ETFs have lower fees than IEMG. The fund's price point is meaningful because it has lured droves of investors, both professional and retail. Today, IEMG has $61.17 billion in assets under management, making it the second-largest emerging markets ETF behind the Vanguard FTSE Emerging Markets ETF (NYSE:VWO).

“The fund’s low expense ratio helped it beat the category average by 30 basis points annually from its launch in October 2012 through February 2019,” said Morningstar in a recent note. “However, its performance did not stand out within the category. Many of its better-performing competitors had a growth tilt and used stock selection to improve their returns. The fund’s 0.14% expense ratio ranks as one of the lowest in its category and should continue to provide a reliable long-term advantage.”

Why It's Important

IEMG has a long history of asset-gathering dominance, an impressive feat considering the fund has been around for some bumpy periods for emerging markets equities. Year-to-date, IEMG has seen inflows of $5.16 billion, good for the second-best total among U.S.-listed ETFs. Last year, IEMG was the third-best ETF in terms of new assets added with inflows of $15.72 billion, following up on the $16.57 billion that flowed into the fund in 2017.

IEMG provides exposure to more than 2,200 stocks spanning more than 15 countries, but even that level of diversification and the fund's cap-weighted methodology doesn't mean it's a risk-free bet.

“Some of these companies are partially owned by sovereign governments,” said Morningstar. “This can expose investors to a certain level of political risk because governments can put their political interests before those of public shareholders. Additionally, many of these developing nations do not have the infrastructure and mature legal systems that are more common in developed markets like the U.S. and Europe. This can increase both the cost and difficulty of conducting business in these countries.”

What's Next

IEMG could see some changes later this year as Argentina and Saudi Arabia join the MSCI Emerging Markets Index and as MSCI boosts the weight of mainland Chinese stocks in its international benchmarks.

Morningstar has a Bronze rating on IEMG.

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