Will International Vanguard VIPERs displace popular EEM and EFA?

More investor funds are flowing to international ETFs than domestic sectors over the past few months, according to most tracking services that monitor this data, writes Dave Fry, founder and publisher of The ETF Digest.

The prime beneficiaries have been EEM (MSCI Emerging Markets ETF) and EFA (MSCI Europe/Asia & Far East).  These all-inclusive funds have given investors the opportunity to gain broad global equity exposure without risks often associated with single-country or regional ETFs.  Recently Vanguard has introduced competitive ETFs that feature similar coverage benefits with lower substantially lower fees.

Vanguard’s entries include: VWO (Vanguard Emerging Market VIPER), VGK (Vanguard European VIPER), and VPL (Vanguard Pacific VIPER). 

VWO should compare and trend favorably with heretofore popular EEM.  Unlike EEM, structurally VWO does not include Russia.  However, fees for VWO are substantially less (.30%) versus EEM (.75%).  For the long-term investor, VWO may be the better choice from a cost basis.  However, typically ETF investor habit and liquidity considerations are also paramount for more active investors.  VWO, with only a one month history, is currently trading less than 50K shares per day versus 400K for EEM.  Less liquidity can result in trading slippage (wider bid/ask spreads) offsetting whatever was gained in fee saving.

VGK and VPL when combined are similar to being invested in EFA.  Again, the fee saving is substantial with VIPER fees at .18% versus EFA’s .30%.  The fee advantage remains for VIPER’s.  However, in order to make a fair comparison, both VGK and VPL must be purchased resulting in two versus one commission.  The still fresh VIPER’s also suffer liquidity differentials when compared to EFA.  VGK and VPL are trading an average of 50K shares daily versus EFA at 750K.

Over time, VWO, VGK, and VPL trading volumes may increase making them more attractive to both traders and long-term investors alike.  At the ETF Digest we continue to focus on EEM and EFA patiently waiting and watching to see if VIPER trading volume builds to more appropriate levels.