EEM
iShares MSCI Emerging Markets ETF
Published by Radif Partners · Updated
Overview
iShares MSCI Emerging Markets ETF (EEM) tracks the MSCI Emerging Markets index and holds its constituents directly, a physical replication managed by iShares. Dividends are paid out to holders rather than reinvested, so EEM suits investors seeking regular income. The fund is domiciled in US, which determines the withholding tax treatment applied to its dividends. Annual charges come to 0.68% of assets, and the fund holds 31.1B under management. Over five years the fund returned 3.9% a year on average, against 19.5% over three years. It is not eligible for the French PEA, but can be held in a securities account, a UK ISA or a German Depot. Its risk level is rated high. Launched on 2003-04-07, the fund is denominated in USD and has 23 years of track record. Because EEM distributes, every payment is taxable in the year it is received, against the dividend allowance in a general account, while it stays sheltered inside an ISA or a SIPP. Domicile in US sets the withholding the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return.
At 0.68%, this fund costs more than twice the median of its category (0.19%) and over 34.0 times the cheapest (0.02%). On £10,000 the gap to the median is worth about 490 over ten years, and that difference is certain in a way no performance gap is. A premium can be justified, by an index no competitor tracks, by a useful trading currency, or by size that guarantees liquidity; it is not justified by the brand. The question is therefore plain: what does this fund offer that the cheapest on the list does not?
Replication is physical: the fund actually holds the constituents of MSCI Emerging Markets, which makes its contents verifiable line by line in the issuer's report. Two points deserve attention. Securities lending first, practised by most physical funds to reduce costs: it earns a few hundredths of a point and creates an exposure to the borrower, covered by collateral, with the annual report stating the proportion lent. Rebalancing second: every change in the index's composition forces the fund to buy and sell, and those internal costs are not in the 0.68% headline. That is why two funds at the same price do not track their index with the same fidelity.
The fund is domiciled in the United States, and for a European investor that is the point to settle before any other. A US fund is outside UCITS regulation: most European brokers cannot offer it to a retail client for want of a key information document, so access depends on the investor's status. Two tax consequences follow as well: dividends paid to a non-resident bear US withholding, reduced by treaty where a W-8BEN is in place, and US securities held directly fall within US estate tax above a threshold that is low for a non-resident. An Irish-domiciled equivalent avoids both questions.
Income is distributed: the fund pays out the dividends it receives, usually one to four times a year. For a holder living off the portfolio that is what is wanted, since the income arrives without selling. For someone still accumulating it is a tax disadvantage in a taxable account: each payment is taxed in the year received, so the amount reinvested is reduced before it starts working again. Reinvesting by hand also costs a dealing commission each time and often leaves cash idle for want of the price of a whole unit. An accumulating class on the same index, where one exists, settles the question.
With 31.1 billion in assets and 23 years of history, this fund has the size and the record that make closure unlikely and the spread narrow. Three checks remain, once a year, none of which depends on the market. The ongoing charge, which an issuer revises without notice and whose gap to a competitor can invert. The tracking difference, the only figure that says whether replication stays faithful. And the methodology of MSCI Emerging Markets, which can change its selection or weighting rules without the fund's name moving, in which case what you hold has changed with nothing to announce it.
MSCI Emerging Markets covers emerging markets, and the real exposure is more concentrated than the name suggests: a few countries and a few very large companies make up most of the index, so the fund is less diversified than a world index despite a high number of holdings. Three layers are added that a developed index does not have. Currency first, which historically weighed as much as the prices themselves. Political and regulatory risk next, including the possibility that a market becomes inaccessible. And withholding tax on dividends, heavier and less recoverable, which shows in the tracking difference rather than in the fees.
Over one year the fund shows 14.1% against 3.9% annualised over five years: the recent year sits well above the long average. A gap in that direction mainly counsels care about the entry point, since what has risen sharply lately costs more today than a year ago, and the long average is the figure that best describes what to expect.
0.68%
31.1B
31,071M USDHigh
182
Physical
Distributing
USD
US
MSCI Emerging Markets
iShares
2003-04-07 (23 years)
Contextual Analysis
Fund Size
With 31.1B in assets, this is a large fund, good liquidity and tight spreads.
Fee Positioning
A TER of 0.68% is above the market average (~0.35%), justified if the strategy is specialized.
Track Record
Launched in 2003-04-07, this fund has 23 years of history, long and reliable track record.
Risk Profile
High risk, suited for long-term investors comfortable with volatility.
Performance
Returns Summary
| Period | Ann. Return | Cumulative |
|---|---|---|
| 1 Month (est.) | – | +1.1% |
| 3 Months (est.) | – | +3.3% |
| 6 Months (est.) | – | +6.8% |
| YTD (est.) | – | +5.6% |
| 1 Year | +14.1% | +14.1% |
| 3 Years | +19.5% | +70.8% |
| 5 Years | +3.9% | +20.8% |
| Since inception (23y) | +12.5% | +1397.4% |
Key Facts
Fund Profile
Themes & Zones
Holdings
Risk
How to Buy This ETF
Select your country in the menu to see available brokers and wrappers.
About this ETF
The iShares MSCI Emerging Markets ETF tracks the MSCI Emerging Markets index. It is managed by iShares using physical replication and follows a distributing distribution policy. The fund is denominated in USD and domiciled in US. It has a total expense ratio (TER) of 0.68%.
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Frequently asked questions
What do EEM's 0.68% charges actually cost?
They are taken from the fund's value continuously and never billed separately: on £1,000 invested that is about £6.80 a year and roughly £68 over ten years at a constant amount. That is the only cost of the fund itself. Your broker's commission and the spread between buying and selling price come on top, and they weigh most on small frequent purchases.
How do you buy EEM, and on which venue?
Through any broker that lists ISIN US4642872349. The same strategy often exists in several share classes with different fees and distribution policies, and what counts is the class you buy rather than the one you read about: check the ISIN, not the name. A limit order avoids paying the spread of a thin order book, particularly outside the trading hours of the underlying markets.
Is EEM genuinely diversified?
Less so than the number of holdings suggests. MSCI Emerging Markets weights its constituents by market capitalisation, so the largest companies make up a share of the fund far above their number, and that concentration deepens without any rule changing. The useful check is the weight of the top ten holdings, published monthly by iShares: that figure says how many companies the outcome actually depends on.
What should you re-check on EEM once a year?
Three things, none of which depends on the market. The ongoing charge, which an issuer revises without notice and whose gap to a competitor can invert. The tracking difference, the only figure that says whether replication stays faithful. And the methodology of MSCI Emerging Markets, which can change its selection or weighting rules without the fund's name moving: in that case what you hold has changed with nothing to announce it.
Does EEM lend out the securities it holds?
Probably in part: most physical funds lend securities to reduce their costs, and iShares publishes the proportion in the annual report. Lending income is worth a few hundredths of a point, shared between the fund and the issuer. The risk is the borrower's, covered by collateral worth more than the amount lent, and it appears in the prospectus rather than in the stated fee.
This ranking is for informational purposes only and does not constitute a recommendation to buy or sell any security. Displayed performance is simulated.