Ishares holding on… but for how long?

By: ispeculatornew
Date posted: 04.22.2010 (5:00 am) | Write a Comment  (0 Comments)

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I’ve written about this a few times, but I’m still surprised every day to see that Ishares is not reacting. EEM and VWO are two ETF’s that track the same index, the MSCI Emerging Markets Index. This is a broad index and while they both use different ways to track it, their return has been almost identical in recent years. EEM is the older of the two and in the ETF business, that does mean a lot.


If you take a look at ETF’s on US markets, you will notice that in almost all cases, the first ETF to hit the market has the advantage and even if they charge a bit more fees, they remain on top. A good example is SPY, which tracks the S&P500. It is one of many ETF’s that tracks the index and even though it is not the cheapest or even the best at tracking, it is by very very far, the most used and has the most assets under management. Why? Because it is the biggest, the most liquid, the most active. And for most investors, that has tremendous value.

Ishares however is testing that theory and perhaps taking things a bit too far. It was the first mover for the emerging markets launching EEM almost 7 years ago to the day. Because of that, it had a huge advantage and newcomers had a major hill to climb. It is even more true for EEM which is a lot more complex to manage because of all of the markets and currencies involved. But when Vanguard launched VWO, with fees almost 3 times less than EEM, Ishares did not react.

Every month since then, Ishares has stood aside, seeing all the new investors (as well as many current ones) take their money to Vanguard’s fund. I don’t remember the last time EEM had bigger asset growth in a month than VWO. Of course Ishares is scared of losing the 0.72% it charges annually for all EEM shareholders, but if VWO reaches the point where it is as big or even bigger than EEM, will it be too late for Ishares to react?

Here are the current numbers:

EEM: $ 35,935,310,000.00
VWO: $ 24,284,510,000.00

They are now about 11,5$ billion apart but that is changing fast. How long do you think it will take for VWO to catch up? And when that happens, will EEM be able to recover?

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