Emerging Markets: Why favor EEM over VWO?

Discussion in 'ETFs' started by bendlikon, Jan 12, 2009.

  1. bendlikon


    The Vanguard ETF (VWO) is not only cheaper than the iShares ETF (EEM) but also has more individual holdings, therefore providing better diversification:

    EEM: ER 0.72%, 340 holdings
    VWO: ER 0.25%, 795 holdings

    It also seems that EEM mainly invests in ADRs while VWO actually holds stocks in the local exchanges.

    The only explanation I have is that EEM is older and was therefore first to establish liquidity (both ETF and its derivatives) over the newer & superior VWO.

    Any other reasons to favor EEM over VWO?
  2. The beauty of ADRs is that they price intra-day here while the NYSE is open. If you own forign securities in your ETFs then you can have wild price swings in your holdings after you have struck a NAV - not good when you open up 2-3% off of NAV because of price issues.

    EEM is also the standard because they were first to market.
  3. That's a "deception". If the issues are mostly correlated, you have concentration, not diversification. :cool:
  4. bendlikon


    So I take it that the intraday pricing of ADR's make EEM more attractive for US market daytraders.

    For longer term investor I guess the lower expense ratio of VWO would be more important.

    Agreed - more holdings does not mean more diversification per se. Good point.

    In addition, it seems like the 200 smallest holdings of VWO make up less than 5% of the total, so hardly making any impact at all.
  5. Nanook


    MUCH heavier option volume on EEM (i.e., liquidity).

  6. bend**** - ADRs are interesting - our traders like them but our quants hate them. An ADR is simply a proxy - its like a commodity fund that owns "commodity related companies" (like our commodity fund) - they are proxies not direct ownership.

    ADRs are NYSE/American stocks that trade like the forign stock on the NYSE rather than overseas - they avoid many things like time zones, outside regulations, trading costs, currency exchanges, etc.

    ADRs take futures and the exchange prices into account as well as the NYSE market action and domestic companies.

    You'll notice that EEM does not track the MSCI emerging markets index - and other funds such as EDC & EDZ track EEM rather than the iShares EM index - because EEM is the more widely known index.

  7. For daytrading EEM is way more liquid... look at the 1 sec bars and there's no comparison.

    Longer term I'd go with VWO for the lower ER.

    Here's a scatterplot of closing prices, Aug 1 2008 -- present:

    <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=2256934>