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FXF

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« on: December 16, 2014, 12:17:28 AM »
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« Last Edit: April 30, 2018, 11:54:46 AM by FXF »

Mr FrugalNL

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Re: Questions regarding Emerging Markets ETFs
« Reply #1 on: December 16, 2014, 01:11:52 AM »
I've somewhat narrowed it down to
iShares MSCI Emerging Markets UCITS ETF Inc which seems to closely mirror the Vanguard FTSE Emerging Markets ETF which seems to be one of the go to EM EFT I see thrown around in discussions here.
The ETF is very broadly footed in the BRIC's and many smaller countries beyond that.

The links aren't working. :(

Thing is looking at the historic graph, there isn't this 'it will obviously rise on average' on display. Is this because the time horizon isn't long enough. Is it expected for the EM in general to start rising again in the future? As this is long term I'm not too worried if the current plateau continues for a while.

Emerging market shares give you a wilder ride than shares in developed markets. Or at least they have the past few years. If you're not seeing much in the way of a long-term increase, then yes that is probably because you're only looking at a short period.

Also the TER is pretty awful at 0.75% which would make it by far the most expensive ETF in my portfolio. But on the other hand the cheapest EM ETF available to me is at 0.4% which would also put it close to the top of the pile in my portfolio. (That ETF doesn't look as inviting to me because it is significantly less diverse)

0.75% seems on the high end, even for an emerging markets ETF. What's more interesting than the TER, however, is how much the ETF's total returns lag the benchmark. If you look at the Vanguard FTSE Emerging Markets UCITS ETF, for example, you'll notice that its TER ('ongoing charges') is 0.25%, but that the ETF only lags its benchmark by 0.1% point. What this tells you is that Vanguard must be doing something to recoup part of the TER, like lending securities to third parties or not quite perfectly matching the index by having some cash on hand. If it's the latter then it may not have been a deliberate choice, but it's been to the benefit of investors in the ETF in this case.

So what should I be looking out for when wanting to diversify into the EM?
Is it to be expected that the short turn returns will be meagre or possibly even negative when taking the TER into account?
Is a high(er) TER to be expected with EM ETF?

What you should expect in the short term is surprises. What you should hope for in the long term is gains. Higher TERs are indeed to be expected with EM ETFs. I guess regulatory, market or other factors make it more expensive to manage an emerging markets ETF.

Mr FrugalNL

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Re: Questions regarding Emerging Markets ETFs
« Reply #2 on: December 16, 2014, 02:07:02 AM »
And I don't really understand what you are saying regarding the Vanguard ETF. What does their performance relative to the benchmark have to do with their TER?

The TER is a measure of how much an investment costs, but it doesn't tell the whole story: Not all costs incurred by a fund are included in its TER. A better way of looking at how much a fund costs you is to compare its performance to that of its benchmark. That iShares EM ETF seems to lag its index by 0 to 3.1% per year. That's rather more variable than I would have expected, actually.

samuck

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Re: Questions regarding Emerging Markets ETFs
« Reply #3 on: December 16, 2014, 02:37:05 PM »
I'm holding the EM Vanguard ETF you've mentioned, and I'm very happy with it. Before that, I invested in the SPDR EM dividend ETF, however, it has quite a high TER with 0.65: http://www.six-swiss-exchange.com/funds/security_info_en.html?id=IE00B6YX5B26CHF4 Bought it originally because I wanted to go for dividends, bit I got away from that, capital gains is better.