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EEM vs. VWO: The Advantage of Being a 'First Mover'

by: Index Universe August 20, 2008 | about stocks: EEM / VWO    
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By Jim Wiandt

When Matt Hougan told me what he was blogging about, I told him to stop picking on the runt kid.

I mean, honestly, you do have to ask yourself, what has EEM done for me lately? Sure, when it was launched it offered unprecedentedly cheap and efficient access to the notoriously Inefficient Emerging Markets asset class. It was a boon, and money poured in on merit. Billions and billions. But now you look at the lay of the land and all I can come up with that EEM has done lately is "be the first mover."

You look at the competition and you've not only got other funds that are WAY cheaper (Vanguard's VWO is less than HALF the price at 30 bps to 74 bps for EEM), but with that fund in particular, you've got practically identical exposure to the asset class in the form of the same MSCI index. And if all that weren't enough, you're in one of the few asset classes where there may be some benefit to the traditional fund structure/share class structure. EEM got walloped on (negative) tracking error for a stretch last year, while the Vanguard fund at least kept playing the same sport.

So maybe we're nitpicking, but if there ever seemed to be a screamingly clear example of assets not pouring into quality/better price & performance, this is it. Ironically, BGI was on the other side of that lesson, back in the day when the thinking was that IVV, their S&P 500 fund, would blow SPY out of the water with its 9.45 bps launch. Looks like they may have learned their lesson a bit TOO well.

And bit by bit, the Vanguard fund is chipping away at the mega EEM. (Now nearly $7 billion to EEM's $21.5 billion-plus, with the respective launches in 2003 (EEM) and 2005 (VWO). But despite that headway, EEM and BGI are still printing money. Let's not forget that EEM was at the very top of my list of revenue makers for ETF product issuers.

So what is it working for EEM in reality, tax efficiency? Liquidity? Maybe some of yes on both. But I wouldn't go around touting EEM's 300 basis point tracking error (though it happens to be on the right side this time). The only time you should get a prize for that is if you're active. And then, most likely, we'll be giving you the "Lucky Prize."

So please Matt, can we leave the runt kid alone? It's just not right to pick on such an easy target even if he's a snotty-nosed cashmere-vest-wearing runt.

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This article has 2 comments:

  •  
    Aug 20 06:43 PM
    Neither is worth the time it took to write your piece. Buy gold for now.
    Reply
  •  
    Aug 20 08:27 PM
    Buying gold for a 20 or 30 year horizon is pretty silly. This article isn't about trading, it's about investing. Items such as expense ratios and tracking error aren't of much interest to someone who trades every other day.

    ~X~
    Reply
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