We Compare IEMG vs EEM:
We’ll compare two popular emerging market ETFs: the iShares Core MSCI Emerging Markets ETF (IEMG) and the iShares Core MSCI Emerging Market ETF (EEM).
Before diving into the comparison, let’s first understand what an Exchange Traded fund (ETF) is and why it is popular among investors.
ETFs are a type of investment fund that trades on a stock exchange.
They are similar to mutual funds in that they offer investors a diversified portfolio of stocks but differ in that they trade like a stock. ETFs can be bought and sold throughout the trading day, making them a flexible and easy-to-use investment option.
Among the popular ETFs are IEMG and EEM funds, both providing exposure to emerging market stocks.
Now let’s compare IEMG and EEM.
IEMG vs EEM
The main difference between IEMG and EEM is the number of stocks in each, with IEMG having 2,559 different companies in the index compared to 1,228 with EEM.
Another significant difference is their expense ratios. IEMG has an expense ratio of 0.11%, lower than EEM’s 0.68%.
IEMG expense ratio 0.11%
EEM expense ratio 0.68%
The lower expense ratio of IEMG can provide significant cost savings over the long term, especially for investors with large portfolios.
Another difference between the two funds is their underlying indexes. IEMG tracks the MSCI Emerging Markets Investable Market Index, while EEM tracks the MSCI Emerging Markets Index.
The MSCI Emerging Markets Investable Market Index includes small-cap stocks, while the MSCI Emerging Markets Index does not.
This means that IEMG has exposure to a larger universe of stocks, which can provide greater diversification benefits to investors.
As you can see from the chart above, there are significant differences between IEMG and EEM.
IEMG vs EEM Performance
Regarding performance, IEMG and EEM have delivered underwhelming returns over the past decade. Investors should be aware of some differences in their performance.
Over the past 10 years, IEMG has generated an annualized return of 1.88%, while EEM has generated an annualized return of 1.11%.
While both funds have underperformed the S&P 500 over this period, IEMG has delivered slightly better returns.
Here is IEMG and EEM Performance:
IEMG has outperformed EEM; however, this is not a predictor of future returns.
You can expect higher volatility from EEM compared to IEMG, as seen from their most recent performance.
IEMG vs EEM Holdings
Another comparison between IEMG and EEM is their holdings. They have the same top 10 holdings, however, in different proportions.
The top 10 holdings comprise 19% of IEMG and 23% of EEM.
IEMG has 2,559 holdings, while EEM has 1,228. This means that IEMG has exposure to more companies, which can provide more diversification to investors.
The top five companies for IEMG and EEM are Taiwan Semiconductor Manufacturing Co Ltd, Tencent Holdings Ltd, Samsung Electronics Co Ltd, Alibaba Group Holding Ltd, and Meituan.
It is worth noting that both funds have significant exposure to Chinese equities, which can make them vulnerable to geopolitical risks and regulatory changes in China.
What’s an Emerging Market?
From an academic standpoint, an emerging market refers to a market or country with some characteristics of a developed economy. These markets are experiencing considerable economic growth and are evolving from “developing” to “developed” economies.
However, regarding investment, the term “Emerging Market” does not have a one-size-fits-all definition.
The definition depends on varying perceptions, which in the first place, is the underlying factor for the significant point in IEMG vs EEM.
In line with the national GDP, the International Monetary Fund ranks South Korea as the tenth-largest economy in the world. The Korean stock market is also the fourteenth largest stock market in the world by market capitalization.
Yet, the MSCI has classified South Korea as an emerging rather than a developed economy.
This is ironic since the S&P 500 index, a top benchmark index for the US stock market, has acknowledged the country as a developed market for over twenty years.
FTSE included South Korea with emerging market countries until 2009, when it ‘promoted’ the country to a developed market.
However, MSCI points out several factors disqualifying South Korea as a developed market.
These include the lack of offshore currency and the recent ban on short selling to curb the effects of the pandemic, which affected investors.
One of the core ETFs from BlackRock, iShares Core MSCI Emerging Markets ETF (IEMG), is an emerging market fund designed to track the investment returns of the MSCI Emerging Markets Investable Market Index.
MSCI’s emerging market index is all-cap emerging market equity.
IEMG closely mirrors its underlying index, the MSCI index. It invests almost all its assets in the same securities as the underlying index.
MSCI counts South Korea as an emerging market instead of a developed market, so IEMG includes South Korea in its holdings.
However, the fund is designed in such a way as to partially replicate the underlying index to allow for preferences in investing and keep tracking errors low.
This is an investment strategy called representative sampling.
Lastly, the fund has exposure to India. It invests a portion of the portfolio in India via a subsidiary from the Republic of Mauritius.
IEMG Top 10 Holdings
Blackrock’s IEMG comprises Taiwan Semiconductor Manufacturing, Tencent, Samsung, Alibaba, and Meituan and provides exposure to over 2,000 stocks.
One of the core ETFs from BlackRock, iShares MSCI Emerging Markets ETF (EEM), is an emerging market fund designed to track the investment returns of the MSCI Emerging Markets Index.
MSCI’s emerging market index is all-cap emerging market equity.
EEM closely mirrors its underlying index, the MSCI index. It invests almost all its assets in the same securities as the underlying index.
Blackrock’s EEM includes large- and mid-cap stocks from 26 emerging market countries, including China, South Korea, Taiwan, India, and Brazil.
The fund has an expense ratio of 0.68%
EEM Top 10 Holdings
Blackrock’s EEM comprises Taiwan Semiconductor Manufacturing, Tencent, Samsung, Alibaba, and Meituan and provides exposure to over 1,000 stocks.
Which Is Better: IEMG vs EEM?
Both IEMG and EEM are good investments for exposure to emerging markets. However, they have underperformed compared to U.S. markets over the last decade.
IEMG and EEM are passive and track market-cap-weighted indices for investors that prefer passive investments.
The big difference between the two is the expense ratio.
IEMG has a lower expense ratio than EEM. For investors who prioritize low expenses, IEMG may be the better choice.
No Minimum Investment
IEMG and EEM are exchange-traded funds (ETFs), so there is no minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance.
Normally, fractional shares are not available for ETFs, but with M1 Finance, you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment.
There are two easy ways to invest in IEMG or EEM commission-free.
- Blackrock for EEM or IEMG.
- M1 Finance to invest in either IEMG or EEM (Use this link for $100 when you open a new account)
Both of these options are free. This is important because fees can lower our returns.
M1 Finance is the best option because it lets you purchase IEMG, EEM, and thousands of other stocks.
Here is your guide to getting the M1 Finance $100 Bonus.
I also use Personal Capital to track my investment fees. They have a free Retirement Fee Analyzer that tells you the future impact of fees on your portfolio.
Personal Capital’s free tools allow you to quickly find which of your investments has high fees so that you can switch them to low-cost options. (Get a $20 Amazon Gift Card with this link when you add at least one investment account containing a balance of more than $1,000 within 30 days)
IEMG vs EEM Winner: IEMG
IEMG and EEM are popular emerging market funds and have advantages for investors.
However, with better performance and a lower expense ratio, the winner is IEMG.
You’ll have to decide which emerging market ETF is best for you.
Investors should carefully consider their investment objectives, risk tolerance, and horizon before deciding which fund to invest in.
For example, if an investor is looking for lower fees and more diversification, IEMG may be the better option.
On the other hand, if an investor is looking for exposure to large-cap companies, EEM may be the better choice.
It is also essential for investors to remember that emerging market stocks can be volatile, and regulatory changes or geopolitical risks can significantly impact the performance of these funds. Therefore, conducting thorough research and diversifying portfolios across different asset classes and regions is vital.
In addition, investors should also consider other factors, such as liquidity, trading volumes, and bid-ask spreads, when investing in these funds.
While ETFs are generally more liquid than mutual funds, some may have lower trading volumes and wider bid-ask spreads, resulting in higher investor trading costs.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.