Stocks listed in emerging markets such as South Korea, South Africa, Mexico, Brazil, Russia, India and China have a place in your portfolio because of their higher risk / reward profile and lower correlations to developed markets equities (though markets are becoming more correlated). The MSCI Emerging Markets index tracks the performance of equities listed in 26 emerging markets weighted according to their float-adjusted market capitalization.
There are two ETFs that track the emerging markets index: the older and more-popular iShares MSCI Emerging Markets Index Fund (Ticker EEM) and the upstart competitor from Vanguard Emerging Markets ETF (Ticket VWO). Since both ETFs track the same index, long-term investors would prefer the cheaper option. VWO charges a MER of 0.30% less than half that of EEM (MER is 0.75%). There is a bit of confusion about the composition of VWO. When it was first introduced, VWO did not provide exposure to important markets such as Russia but since last fall, VWO is essentially the same as EEM.
Any mention of emerging markets should include a discussion of the red-hot economies of India and China. Investors can already get a 17% exposure to these nations with either the EEM or VWO and any overexposure through specialized country ETFs or the new-fangled BRIC funds (such as the Claymore BRIC ETF - Ticker CBQ) is overkill (and chasing recent performance).
See Also: Investing in Emerging Markets
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5 responses so far ↓
1 Dave // Apr 25, 2007 at 2:38 pm
Interesting, I didn’t know that they both tracked the same index now. Looks like VWO just switched in August of 2006:
Link
2 A Tour of ETFs: Vanguard Europe Pacific ETF // May 29, 2007 at 8:13 am
[...] The new fund will allow Canadian investors to build their entire foreign equity exposure using Vanguard ETFs: VTI (entire US market with a MER of 0.07%), the Europe Pacific ETF (international developed markets with a MER of 0.15%) and VWO (emerging markets for a MER of 0.30%). [...]
3 Tidying up the Sleepy Portfolio // Aug 15, 2007 at 7:00 pm
[...] EEM with VWO: The Vanguard Emerging Markets Index fund (VWO) costs less than half that of the current holdings in [...]
4 Staying the Course // Jan 21, 2008 at 8:00 pm
[...] I don’t know if today marks the bottom of this sell-off but I’m staying the course and doing nothing. At times like this, it is reassuring to look at valuations, which I believe are reasonable. The S&P 500 sports an earnings yield (inverse of the traditional p/e ratio) of 7.6% (based on Friday’s close and estimated earnings for 2008), a spread of 4% over bonds. I’ve been a bit early with REITs in our portfolios but you can only pick the precise bottom through sheer luck. However, I am glad that I picked up bonds last summer when 5-year Canada bonds at yields ranging from 4.3% to 4.5%. I’m still underweight emerging markets in our portfolios and I’m hoping for a buying opportunity in the Vanguard Emerging Markets ETF (VWO). [...]
5 Reader Question on EEM versus CBQ // May 13, 2008 at 11:50 pm
[...] broad emerging market ETF like Vanguard Emerging Markets ETF (VWO) or iShares MSCI Emerging Markets Index Fund (EEM) will provide you with a broad emerging [...]
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