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Why This EM ETF Remains So Popular With Investors

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iShares Core MSCI Emerging Markets ETF (IEMG - Free Report) may be junior to the ultra-popular iShares MSCI Emerging Markets ETF (EEM - Free Report) , but the relatively newer one has set a record for itself. The fund IEMG has "completed five years" seeing not a single day of outflows. With this, the fund has amassed about $40.2 billion in assets since its debut in October 2012 (read: Emerging Markets Leading This Year: 5 Top-Performing ETFs).

In comparison, the Fund EEM entered the market in April 2003 and has grossed about $37.7 billion in assets. Another popular emerging-market fund Vanguard FTSE Emerging Markets ETF (VWO - Free Report) (VWO - Free Report) made an entry into the ETF world in March 2005 and now boasts an asset base of $65.2 billion. An extremely-low expense ratio 0.14% probably helped the fund to acquire such a huge asset base.

Inside IEMG

The fund looks to track an index composed of large-, mid- and small-capitalization emerging market equities. Information technology (25.86%), Financials (21.12%) and Consumer Discretionary (11.14%) have a double-digit weight in the fund. China (28.02%), South Korea (15.13%) and Taiwan (12.43%) have a double-digit weight in the fund. The fund is up about 30.9% so far this year (as of Oct 24, 2017).

Inside EEM

The fund tracks an index composed of large- and mid-capitalization emerging market equities. Again, Information Technology (26.95%), Financials (23.03%) and Consumer Discretionary (10.31%) have a double-digit weight each in the fund. Here also, China (29.74%), South Korea (15.12%) and Taiwan (11.66%) hold the top three spots. The fund is up about 31.2% in the year-to-date frame (as of Oct 24, 2017).

Against this backdrop, let’s take a look what led the junior iShares emerging market ETF to have an edge over the senior fund while both have a similar sort of exposure to the emerging markets.

Low Expense Ratio: iShares Core MSCI Emerging Markets ETF charges a net expense ratio of 0.14% while iShares MSCI Emerging Markets ETF charges 0.72%. Needless to say, the fund that will charge less for a similar kind of exposure will make a killing (read: State Street Intensifies ETF Fee War).

Low Concentration Risks: IEMG has about 1880 stocks in its portfolio while EEM has a total of 850. Though top-10 holdings of the fund IEMG (21.99%) and EEM (25.32%) are not that divergent, overall company-specific concentration risks are lower in IEMG. This went well for the former.

Exposure to Small-Caps: IEMG has about 80% focus on large caps, 13% focus on mid caps, 5% on small caps and the rest is a cash component. On the other hand, EEM has about 90% focus on large caps, 8% on mid caps and 1% on small caps. Slightly greater focus on smaller caps might have favored IEMG as smaller-cap stocks rise more in a trending economy. And emerging market economies are on an uptrend lately (read: EM ETFs: What You Need to Know Before Investing).

Slightly Higher Yields:As of Sep 29, 2017, IEMG yields about 1.76% while EEM yields about 1.32% annually.

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