Here we look at 2 index ETFs for Emerging Markets stocks – IEMG from iShares and VWO from Vanguard.
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In a hurry? Here are the highlights:
- IEMG and VWO are the two most popular ETFs for Emerging Markets.
- IEMG is from iShares. VWO is from Vanguard.
- IEMG tracks the MSCI Emerging Markets Investable Market Index. VWO tracks the FTSE Emerging Markets All Cap China A Inclusion Index.
- IEMG has an expense ratio of 0.09%. VWO is slightly cheaper at 0.08%.
- IEMG has about 2,500 holdings. VWO has about 4,300 holdings.
- Both funds are highly liquid; both have an average spread of 0.01%.
- VWO is slightly more popular than IEMG.
- IEMG has slightly more exposure to larger technology companies.
- IEMG includes Korea while VWO does not.
- Performance between the two funds has been neck and neck every year.
- This is a great pair to use for tax loss harvesting purposes to avoid a wash sale.
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IEMG vs. VWO – Differences in Methodology and Composition
If you’ve landed here, you probably already know that index funds are a great way to get instant diversification across sectors and cap sizes. Competition for lower fees has also made index ETFs cheaper for retail investors with every passing year.
IEMG is the iShares Core MSCI Emerging Markets ETF. It is the second most popular fund to capture Emerging Markets stocks, so it made the list when I explored the best Emerging Markets ETFs here. It was established in late 2012. The fund seeks to track the MSCI Emerging Markets Investable Market Index. IEMG has over $75 billion in assets and has a little over 2,500 holdings.
VWO is the Vanguard FTSE Emerging Markets ETF. The fund provides similar broad exposure to Emerging Markets stocks. It launched in 2005. The fund seeks to track the FTSE Emerging Markets All Cap China A Inclusion Index. This ETF holds about 4,300 stocks. VWO is slightly more popular than IEMG with over $80 billion in assets.
The biggest difference here is that IEMG includes South Korea while VWO does not. A big name in the crosshairs that comes to mind is Samsung. As a result, VWO is more concentrated geographically with greater exposure to its top markets like China, India, and Taiwan, which comprise roughly 67% of the fund, while these countries make up about 59% of IEMG.
This is the case because the MSCI index that IEMG tracks classifies Korea as an emerging market, while VWO’s FTSE index does not. Thus, you’ll instead find Korea in VEA, Vanguard’s ETF for Developed Markets.
As you’ll see below, all this hasn’t resulted in a significant performance difference between the two.
Both of these funds are highly liquid, with an average spread of 0.01%. Sector composition is nearly identical, with IEMG having slightly more exposure to tech companies. IEMG also costs 1 basis point more with a fee of 0.09%, while VWO is 0.08%.
IEMG vs. VWO – Historical Performance
Outperformance between these two tends to switch off year to year. Going back to IEMG’s inception in 2012, it has slightly outperformed VWO when looking through 2021:
Conclusion – IEMG vs. VWO
IEMG and VWO are basically interchangeable, but your choice may come down to your view on Korea and subsequently, whether or not your portfolio is also exposed to ex-US Developed Markets. I already have Korea via VEA, so I like VWO just for its slightly lower fee and greater number of holdings, so I own it. Either is a fine choice for broad exposure to Emerging Markets. This is definitely a great pair to use for tax loss harvesting purposes to avoid a wash sale.
Disclosure: I am long VEA and VWO in my own portfolio.
Disclaimer: While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.
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Might be worth updating this article to include the lowered expense ratios (though VWO is still cheaper). Also might want to mention that people should consider what developed ETF would pair with each.
VWO and VEA for FTSE
IEMG and IDEV for MSCI
Wouldn’t want to miss out on South Korea.
Funny timing, I was just looking at these two but then saw an even more intriguing EM ETF – EMXC. Personally, I am bearish on China and already have exposure to AVES and when I went to Portfolio Visualizer’s Factor Analysis, EMXC actually was statistically significant with the Value factor since its inception while VWO, IEMG and even SCHE had no factor significance. What do you think? The only downside with EMXC is it’s higher net expense ratio and portfolio turnover. Thanks for the article!