Market Overview

Five ETFs That Lost Their First-to-Market Advantage


With so many “me too” funds out there, the first-to-market advantage is an important one in the ETF business. Simply put, being the first issuer to bring a specific ETF to market can be vital in terms of attracting assets and volume. And assets and volume are the lifeblood of any new ETF.

The importance of the first-to-market advantage is highlighted by two ETFs: The SPDR S&P 500 (NYSE: SPY) and the SPDR Gold Shares (NYSE: GLD). These two funds have faced intense competition from a plethora of rivals, but they still remain the biggest funds in their respective categories and a lot of that has to do with the fact they were the first ETFs in those genres.

That said, not all first-to-market ETFs maintain their advantages. Some lose their crowns to rival ETFs. Here are five examples, some of which you may already be familiar with and some potential surprises.

iShares Emerging Markets Index Fund (NYSE: EEM): Now let's be clear: The iShares Emerging Markets Index Fund isn't going anywhere. When an ETF has $30.5 billion in assets under management, it's not just going to disappear. However, what was once rivalry with the Vanguard MSCI Emerging Markets ETF (NYSE: VWO) isn't even a competition anymore. VWO does almost exactly the same thing as EEM with an expense ratio that is less than a third of the EEM's. That explains why VWO has $50.8 billion in AUM.

Market Vectors Poland ETF (NYSE: PLND): The Market Vectors Poland ETF debuted in late 2009 and at the start, it looked like no other issuers would bother challenging this fund. iShares had other ideas with the iShares MSCI Poland Investable Market Index Fund (NYSE: EPOL). EPOL has $134.5 million in AUM compared to $47.6 million for PLND. Don't rule out PLDN regaining its first-to-market advantage because it does have a slightly lower expense ratio.

iShares Dow Jones U.S. Real Estate Index Fund (NYSE: IYR): The iShares Emerging Markets Index Fund is one of the oldest U.S.-listed REIT ETFs and its $2.9 billion in AUM is a nice haul. However, Vanguard got the better of iShares again with the Vanguard REIT ETF (NYSE VNQ), which is far newer and cheaper. VNQ has an expense ratio of 0.12%. That's a quarter of IYR's expense ratio. VNQ also has about six times the AUM of its older rival.

Oil Services HOLDRs (AMEX: OIH): The Oil Services HOLDRs is still a big, highly liquid ETF and although it only beat the iShares Dow Jones U.S. Oil Equipment Index Fund (NYSE: IEZ) to market by a few months, it has clearly lost its first-to-market advantage to IEZ and a couple of other ETFs. Maybe the folks at Van Eck can restore some of OIH's lost luster when it becomes a market vector ETF.

EGShares India Small-Cap ETF (NYSE: SCIN): The EGShares India Small-Cap ETF beat the Market Vectors India Small-Cap ETF (NYSE: SCIF) to market by several months last year, but SCIF has almost $45 million in AUM compared to about $27 million for SCIN. Still, SCIN has outperformed its newer rival by 5% year-to-date.

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