There are three diversified emerging market equity ETFs: BLDRS Emerging Markets 50 ADR Index (ADRE); iShares MSCI Emerging Markets Index (EEM); and Vanguard Emerging Markets Stock ETF (VWO). This is a study of their relative merits. The new Claymore/BNY BRIC ETF (EEB) is not considered diversified enough to be comparable. I do not have a position in any of these securities at this time.
1. Expense Ratio: ADRE, .30; EEM, .77; VWO, .30. The first step will be to eliminate EEM because it has the highest expense ratio. That is too bad, because its average daily trading volume is much greater than the other two. EEM may be the best vehicle for short-term traders but long-term investors should keep looking.
2. Dividend Yield: ADRE has a definite edge at 2.46%. VWO is 1.54%. Different sites give different results; these are from eftconnect.com.
3. Diversification: VWO is more diversified overall with 18% of assets in their top ten holdings, while ADRE has 44%. My impression is that VWO is more diversified by country and ADRE is more diversified by industry. ADRE has a notably higher concentration in Brazil
4. Market capitalization: Average for ADRE is $30 billion while VWO is $10 billion.
5. Relative strength: ADRE has been trading for 4 years but VWO has only been around for 18 months. Looking at those 18 months, ADRE has consistently outperformed VWO. Year to date, ADRE has gained 20%, VWO 13%.
Conclusion: ADRE looks like the best choice. VWO’s broader diversification may dampen volatility on the downside, but it has been holding them back on the upside. VWO’s smaller-cap portfolio could work out well in the end.