Which Emerging Markets Index Is Best?

Feb. 14, 2018 3:25 PM ETEEM, IEMG, SCHE, VWO6 Comments

Summary

  • There are substantial differences between the four largest emerging market index funds.
  • All four funds follow a different index.
  • Each fund has substantial variations between country and sector weightings.

With the US stock market trading at a P/E of around 24, international developed markets at around a P/E of 16, emerging markets are one of the cheapest equity asset classes (with a P/E of around 15). However, not all emerging market ETFs are created equal. In this article we'll go over some of the subtle differences between the four largest emerging market ETFs. We'll look at Vanguard FTSE Emerging Markets ETF (VWO) with $68B in assets, iShares Core MSCI Emerging Markets ETF (IEMG) with $45B in assets, iShares MSCI Emerging Markets ETF (EEM) with $41B in assets, and Schwab Emerging Markets Equity ETF (SCHE) with $5B in assets.

All of the ETFs are low cost with virtually identical annual expenses. Schwab charges .13% annually while all of the rest charge .14%. For most investors a .01% is going to be a rounding error (if you have a $1M portfolio with a 10% emerging market exposure you are looking at just a $100 difference in fees). For most investors the deciding factor on which emerging market ETF belongs in their portfolio is going to be some of the subtle differences in the indexes each fund tracks.

The funds along with the index they track and the number of holdings are shown below. Data is as of 12/31/2017 except for the iShares funds which are as of 2/9/2018.

Ticker

Index Tracked

Holdings

VWO

FTSE Emerging Markets All Cap China A Inclusion Index

4734

IEMG

MSCI Emerging Markets Investable Market Index

1917

EEM

MSCI Emerging Markets Index

862

SCHE

FTSE Emerging Index (Net)

909

So, let's look at some of the important differences.

What is South Korea?

Well, we all know it's the country currently hosting the Winter Olympics but beyond that FTSE and MSCI aren't in agreement what

This article was written by

Ben Strubel is the President and Portfolio Manager of Strubel Investment Management, LLC ("SIM") a registered investment advisor. Strubel Investment Management provides investment and wealth management services for individuals and business. Mr. Strubel also conducts machine learning and AI research to help improve portfolio returns. Wealth Management: www.strubelim.comAI and Finance: stmt.ai

Disclosure: I am/we are long SCHE, VWO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (6)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.