When it comes to diversified, or multi-country, emerging markets ETFs, two funds reign supreme. Those being the Vanguard MSCI Emerging Markets (NYSEARCA:VWO), which will soon drop MSCI as its index provider, and the iShares MSCI Emerging Markets Indx (NYSEARCA:EEM).
VWO and EEM are the two largest emerging markets ETFs by assets. Both have superior brand recognition and both have delivered impressive performances over long-term time frames. Those factors might imply that VWO and EEM do not have worthy rivals in diversified emerging markets ETF realm.
Actually, the opposite is true. There are several diversified emerging markets ETFs that represent credible alternatives to the aforementioned juggernauts. Remember that in this case, “diversified” means the ETF offers decent exposure to a variety of countries and regions and holds a large number of stocks. For the purposes of this list, multi-country funds tracking just four or five countries with just 30 or 40 holdings were excluded.
With that in mind, here are some of the top diversified EM ETF ideas for 2013. In no particular order, of course.
Flexshares Trust (NYSEARCA:TLTE) In less than three months of trading, albeit somewhat quietly, TLTE has proven itself to be one of the better new ETFs to debut in 2012. TLTE has already attracted almost $37 million in assets and has outperformed VWO since early October.
South Korea, Taiwan, Brazil and China are TLTE’s largest country weights and the ETF’s 1,521 holdings familiar large-cap emerging markets names such as Samsung, Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) and Petroleo Brasileiro Petrobras SA (NYSE:PBR).
Before investors go thinking they have seen this movie before, it is worth noting that TLTE really does “tilt” in a different direction. Meaning, the ETF’s index is screened for value names and small-caps. As such, small-caps represent almost 30 percent of TLTE’s weight, a high percentage for a fund of this type.
iShares Core MSCI Emerging Markets (NYSEARCA:IEMG) It is fare to say that every ETF investor and his sister is aware of the fee war that has taken place among issuers in 2012. Perhaps it is too trite to say that investors are the beneficiaries of rampant fee cuts, but iShares Core MSCI Emerging Markets (NYSEARCA:IEMG) indicates that might be the case.
At its core, not pun intended, IEMG is the iShares vehicle for undercutting VWO on price. Rather than lower EEM’s expense ratio, iShares simply created a new ETF, IEMG. IEMG charges 0.18 percent per year compared to 0.2 percent for VWO.
The iShares product is another China-South Korea-Brazil-Taiwan (in that order) heavy diversified EM ETF full of a familiar roster of holdings. In terms of what 2013 may have in store, as is the case with all the ETFs mentioned to this point, IEMG will benefit from continued bullishness in Chinese equities and a rebound for moribund Brazil.