Emerging Markets

Where the money actually sits

The category holds 18 funds and 467.1B in combined assets, and those assets are not spread evenly. Vanguard FTSE Emerging Markets ETF (VWO), run by Vanguard, holds 164.7B on its own, and the three largest, Vanguard FTSE Emerging Markets ETF (VWO), iShares Core MSCI Emerging Markets ETF (IEMG) and iShares Core MSCI EM IMI UCITS ETF USD (Acc) (EIMI), account for 79.5 % of the total. At the other end, iShares MSCI Turkey ETF (TUR) manages only 163M. Size is no guarantee of quality, but it decides two very concrete things: the spread between buying and selling price you pay on every order, and the odds that the fund still exists in ten years.

The fee gap, in money

Ongoing charges run from 0.08 % for Vanguard FTSE Emerging Markets ETF (VWO) to 0.74 % for iShares MSCI Brazil UCITS ETF USD (Dist) (IBZL), a gap of 0.66 points, against a category average of 0.33 %. On £10,000 held for ten years that gap is roughly 660 in extra charges, before counting the return that money would itself have earned. It is the one variable in the comparison known in advance: past performance does not repeat, fees repeat every year.

Two funds in one category do not hold the same basket

The 18 funds listed track 13 different indices, among them FTSE Emerging Markets All Cap China A Inclusion, MSCI Emerging Markets Investable Market, MSCI Emerging Markets and FTSE Emerging Index. The largest tracks FTSE Emerging Markets All Cap China A Inclusion. That spread is why two funds filed under the same theme can differ by several points over a year: they hold different securities, weight them differently and rebalance on different dates. Each fund page names its index, and that is where a serious comparison starts.

Replication and domicile

17 funds hold the constituents of their index directly, 1 use a swap, including Amundi PEA MSCI Emerging Markets ESG Leaders UCITS ETF Acc (PAEEM) from Amundi. Synthetic replication often tracks more closely and reaches markets that are hard to hold directly, at the price of a counterparty risk that is regulated but real. Physical replication is easier to understand and allows securities lending, which earns the fund income and adds its own risk.

10 of the 18 funds are domiciled in IE, the rest in US and FR. Domicile sets the withholding tax the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return, and it also sets your own tax treatment depending on where you live.

Accumulate or take the income

6 funds accumulate dividends, 12 pay them out. The largest accumulating share class is iShares Core MSCI EM IMI UCITS ETF USD (Acc) (EIMI), the largest distributing one Vanguard FTSE Emerging Markets ETF (VWO). The choice is not about yield, both versions of the same index return the same before tax, but about tax and discipline: the accumulating class reinvests with no cost and no decision, the distributing class pays income that is taxable in the year it arrives.

Age and critical size

The oldest fund in the category, iShares MSCI Brazil ETF (EWZ), launched on 2000-07-10, giving 26 years of history, and the newest, Xtrackers MSCI Emerging Markets ESG UCITS ETF 1C (XMEM), on 2022-12-14. A long record shows how the fund behaved in a fall, which no one-year number can. A fund launched two years ago has lived through a single market regime.

None of the 18 funds manages under 100 million, the smallest being iShares MSCI Turkey ETF (TUR). The category is therefore clear of closure risk for want of size, the risk that forces a sale on the issuer's timetable rather than the holder's.