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Investors Sticking With Emerging Markets ETFs

August 14, 2017 9:01 am
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Investors Sticking With Emerging Markets ETFs

Emerging markets stocks hit a rough spot last week as markets roiled by an intensifying geopolitical rift between the U.S. and North Korea. However, the saber rattling did not prompt large-scale departures from some emerging markets exchange-traded funds, although the MSCI Emerging Markets Index lost 2.3 percent last week.

The widely followed MSCI Emerging Markets Index is still up 22.6 year to date, more than double the 9.2 percent returned by the S&P 500. That emerging markets benchmark was hampered last week due to weakness in South Korean stocks. South Korea, Asia's fourth-largest economy, is the second-largest country exposure the MSCI Emerging Markets Index at a weight of 14.6 percent.

Amid heightened threats and sharp rhetoric from neighboring North Korea, the iShares MSCI South Korea Capped ETF (NYSE:EWY) slipped 4.6 percent last week and saw increased defensive positioning in the options market.

Still Devoted

Investors remain devoted to the Vanguard FTSE Emerging Markets ETF (NYSE:VWO), the largest emerging markets ETF by assets.

“This continues VWO’s impressive showing in 2017 in terms of attracting new assets, with more than $6.6 billion entering the fund during this time frame while the Vanguard FTSE All-World ex-US ETF (NYSE:VEU) has added a not too shabby $2.8 billion,” said Street One Financial Vice President Paul Weisbruch in a note Friday.

Year to date, VWO has added $6.6 billion in new money, a total surpassed by just nine other ETFs and just one other emerging markets ETF. Investors added almost $285 million to VWO last week, good for the sixth-best inflows among all U.S.-listed ETFs.

A Big Difference

Last week, VWO was less bad than the MSCI Emerging Markets Index. VWO lost 2 percent, outperforming the aforementioned emerging markets benchmark because the Vanguard fund tracks a different index that does not classify South Korea as a developing market.

VWO competes with the iShares Core MSCI Emerging Markets ETF (NYSE:IEMG) on price. Both ETFs charge 0.14 percent per year, or $14 on a $10,000 investment. IEMG is one of the top asset-gathering ETFs this year as well and it holds shares of South Korean stocks.

“VWO and IEMG of course both have the same expense ratio, and this likely speaks volumes about the growth of IEMG to the point where it has surpassed its much more tenured and more expensive sister ETF iShares MSCI Emerging Markets ETF (NYSE:EEM).

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Disclosure: Todd Shriber owns shares of VWO.

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