I appreciate Roger Nussbaum taking the time to respond to my article on the international VIPERs, writes J.D. Steinhilber, founder of ETF newsletter and investment management firm Agile Investing. According to Roger, it was not clear whether I was coming out in favor of the VIPERs or iShares international ETFs.
My point was not to take a position that one product solution is better than the other. I think both sets of products are great choices for investors. My point was two-fold:
i) the international VIPERs deserve more attention than they seem to getting; and
ii) there seems to be a lack of understanding on the part of Morningstar and presumably a lot of investors as well, that it is possible to replicate the EAFE index (and by extension the iShares EFA product) by combing the European and Pacific VIPERs, whose expense ratios are half that of EFA.
Regarding bid/ask spreads on the VIPERs, Roger makes a good point that trades can get done inside the spread, but it is certainly more convenient to be able to enter a market order and be done with it versus using limit orders. The spreads on the VIPERs emerging markets ETF have come in as assets and trading volumes have increased in that product, and I would expect the same thing to happen over time with the European and Pacific VIPERs.
I was surprised to see that Roger, for emerging markets exposure, seems to favor ADRE, which only consists of 50 emerging markets stocks that happen to have ADRs traded in the U.S. In my opinion, ADRE does not provide enough diversification and is not as good a proxy for the emerging markets asset class as EEM, which owns 323 stocks or VWO, which owns 596 securities.
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