VIPERs versus iShares (EEM, VGK, VPL, VWO)

David Jackson from the Seeking Alpha Network sent me an email about an article he thought I would find interesting by J.D. Steinhilber from Agile Investing, writes Roger Nusbaum. Before I dissect the article I should note that J.D. writes a lot of good stuff and has a better understanding of ETFs than I do.

First I would encourage you to read the article. Honestly I am not sure what the conclusion of the piece is. I can't tell if he thinks Vanguard is a better choice for foreign ETF exposure or if iShares are a better choice.

J.D. talks about the utility of EEM and EFA allowing investors to capture the entire foreign world, true. He says that the Viper funds have lower expense ratios which may draw more interest from investors, maybe. Then he sort of counters that point by saying the cost advantage is lost with Vipers in the bid ask spread.

Morningstar really talks up that the Vipers are cheaper, but J.D.'s bid ask point knocks the wind out of that sail, doesn't it? As Lee Corso would say, "not so fast my friend." The Bloomberg terminal has a function called Trade Summary Matrix. This screen shows, on a given day, what percentage of the volume occurred at the bid, the ask and in between. Thanks to David at the Schwab Institutional desk I found out that yesterday 100% of the volume for both VGK and VWO was in the middle of the spread. I did not ask for that info for VPL because I don't want to be thought of as a time stealer.

While this is hardly scientific I think if you have an interest in owning any of the Vipers, you have a decent shot of executing your trade in the middle of the spread if you have your order routed to the Primary exchange. I think this is really a non-issue either way.

J.D. really pounds on Morningstar's conclusions which I am very on board with.

My take on these ETFs is that portfolio composition is the most important thing. For some reason VWO excludes Russia. EEM has about a 4% weight in Russia. I think that ignoring Russia will cause VWO to lag EEM and ADRE for that matter for the foreseeable future.

None of these ETFs are identical and there are measurable differences in the returns because of these differences. Basing a decision on which one to buy based on expenses is to assume that the performance differences attributable to composition will no longer matter. Take a look for yourself and draw your own conclusion.

Disclosure: ADRE is a client and personal holding.

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