Investors Pour Into EM ETFs To Close Q1

Friday is the last day of the first quarter, and one of the prominent themes of the first three months of 2017 has been the leadership displayed by emerging markets equities.

With one trading day left in the quarter, the widely followed MSCI Emerging Markets Index is higher by almost 14 percent. Said another way, the combined gains of the S&P 500 and the MSCI EAFE Index do not equal that of the emerging markets benchmark. Investors are responding to that theme by putting money to work with emerging markets exchange-traded funds.

EM ETFs Marched Right Through March

For example, the iShares Core MSCI Emerging Markets ETF IEMG has hauled in $6.53 billion in new money year-to-date. That is more than any other US-listed ETF.

Following a recent fee cut from iShares, IEMG charges just 0.14 percent per year, or $14 on a $10,000 investment. That makes IEMG one of the least expensive emerging markets today. IEMG is the low-cost equivalent to the popular iShares MSCI Emerging Markets ETF EEM. Quiet as it has been kept, IEMG now has almost $27 billion in assets under management, putting in striking distance of the $30 billion held by EEM.

“IEMG was launched in late 2012 (EEM debuted in 2003) as a more ‘optimized’ way to access a broad Emerging Markets index such as the MSCI EM, and we have pointed out in the past in these pieces that the fund contains 1,894 individual equities with an Emerging Markets focus, as compared to EEM’s 844 names,” said Street One Financial Vice President Paul Weisbruch in a note out Thursday.

The Vanguard FTSE Emerging Markets ETF VWO, the largest emerging markets ETF by assets, has gotten heftier this quarter as well. Investors have added $2.11 billion to VWO in the first quarter.

“EEM also has a significantly larger allocation to Large Caps (87 percent) as compared to IEMG’s 77 percent, and this may be partially responsible for the outperformance that IEMG has displayed since inception (with larger weightings to mid and smaller-cap companies),” said Weisbruch.

Year-to-date, VWO is up 12.7 percent compared to 13.9 percent for EEM and IEMG.

Disclosure: Todd Shriber owns shares of VWO.

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