Here is a link to a very good article about the big foreign ETFs, EFA and EEM, writes Roger Nusbaum. What makes the article post worthy was commentary from an investment manager named Herb Morgan from Efficient Market Advisors in San Diego.
Mr. Morgan said he see no "compelling evidence for the inclusion of emerging markets in a portfolio, partly due to the risk." Well the risk involved may not be appropriate for his clients but the chart to the left is reasonably compelling.
The article also cited this from Mr. Morgan (but not as a direct quote); he uses the broader iShares MSCI EAFE fund, which invests in developed international companies. In addition, Morgan noted that the annual expense ratio for the emerging markets ETF, at 0.75%, is more than twice the EAFE fund, which charges 0.35%.
I took that as one reason why he prefers EFA over EEM. In the last two years EEM is up 80% and EFA is up a little over 40%. For the last twelve months EEM is up about 35% and EFA is up 10%. For the last three months EEM is up 6% or 7% and EFA is down 1% or so (I just eyeballed these numbers by looking at the Yahoo charts page). I'm thinking the extra 40 basis points should not be an obstacle to buying the fund.
More importantly it is not clear to me that anyone should compare developed to developing for purposes of fund selection. Emerging is always more expensive and the two asset classes don't seem to have a tight correlation.
A lot of people get quoted for various investment stories. Questioning what you read is a great way to learn.
