Comparing Emerging Market Stock ETFs EEM and VWO

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Includes: EEM, VWO
by: David Jackson

A reader (who wishes to remain anonymous) sent in the following interesting comparison of the two emerging market stock ETFs, EEM and VWO:

He writes: I looked a few weeks ago at the holdings of EEM (iShares) and the rival Vanguard ETF, VWO, and saw something unusual.

Here's the breakdown for EEM as of 4-30-05:

17.5%   Korea
12.8%   South Africa
10.5%   Taiwan
9.7%    Brazil
8.2%    China
7.2%    Mexico
5.1%    India
4.8%    Israel
3.8%    Russia
3.7%    Thailand
2.8%    Indonesia
2.7%    Hungary
2.5%    Czech Republic
2.4%    Chile
1.7%    Philippines
1.4%    Turkey
1.0%    Hong Kong (but Chinese)?
0.5%    Luxembourg
0.5%    Venezuela
0.2%    Malaysia
0.1%    Cash
99.1%

Here's the breakdown for VWO as of 4-30-05:

20.2%   Korea
14.1%   Taiwan
12.5%   South Africa
11.1%   Brazil
8.6%    China
6.8%    Mexico
6.1%    India
4.0%    Israel
2.7%    Indonesia
2.5%    Thailand
2.3%    Turkey
2.2%    Poland
2.1%    Chile
1.9%    Hungary
0.8%    Czech Republic
0.6%    Philippines
0.3%    Uncharacterized
0.3%    Peru
0.3%    Luxembourg
0.3%    Argentina
0.2%    Venezuela
100.0%

More significantly, the Vanguard ETF covered 684 securities whereas the IShares ETF covered just 262.

In some countries such as South Africa, there was almost perfect overlap between what securities were in EEM from that country and what were in the single country ETF. For others -- especially Korea -- EEM was sampling only a small minority of the securities held by the single country ETF.

According to the prospectus, there are 26 countries in the index iShares tracks. it does not actually hold anything, however, from Colombia, Egypt, Jordan, Morocco, Pakistan, Peru or Poland.

There's 5 to 10 times greater daily  volume in EEM than VWO. Total EEM assets dwarf those of VWO. On the other hand, VWO benefits from being essentially a byproduct of the corresponding Vanguard index fund which is very big and very well established.

VWO has lower expenses.

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