Better iShares Emerging Markets ETF: IEMG vs. EEM

The iShares Core MSCI Emerging Markets ETF (NYSEMKT:IEMG) offers a more cost-effective and diversified entry into developing economies compared to the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM).

Both of these iShares ETFs seek to capture the growth potential of developing nations, focusing on companies of varying sizes in regions like China, India, and Taiwan. This comparison evaluates whether the massive, low-cost iShares Core MSCI Emerging Markets ETF offers a better value proposition for investors than the older, higher-priced iShares MSCI Emerging Markets ETF.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares Core MSCI Emerging Markets ETF is significantly more affordable, carrying an expense ratio of 0.09% compared to 0.72% for the iShares MSCI Emerging Markets ETF. Investors also receive a higher payout from the core fund, which carries a 2.4% yield.

Performance & risk comparison

What's inside

The iShares Core MSCI Emerging Markets ETF holds 2,853 stocks, providing a much wider reach into small-capitalization companies that the older fund lacks. Its primary sector concentrations are Information Technology at 39%, Financials at 19%, and Consumer Discretionary at 8%. Top holdings include Taiwan Semiconductor Manufacturing at 13.88%, Samsung Electronics at 5.86%, and SK Hynix at 4.10%. The fund was launched in 2012, and has paid $1.80 per share over the trailing 12 months, which on its recent ~$75.74 share price works out to a 2.4% yield.

The iShares MSCI Emerging Markets ETF takes a narrower approach with 1,184 holdings, focusing strictly on large- and mid-cap stocks. Sector weights are similar, with Information Technology at 41%, Financials at 21%, and Consumer Discretionary at 8%. Its largest positions include Taiwan Semiconductor Manufacturing at 15.81%, Samsung Electronics at 6.68%, and SK Hynix at 4.67%. The fund was launched in 2003, and has paid $1.11 per share over the trailing 12 months, which on its recent ~$62.01 share price works out to a 1.8% yield.

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Which looks like the better buy

For investors seeking exposure to fast-growing emerging markets, iShares has you covered. Choosing between the iShares Core MSCI Emerging Markets ETF (IEMG) and iShares MSCI Emerging Markets ETF (EEM) comes down to whether you're an active trader or a buy-and-hold investor.

EEM is for those who want to buy and sell, since its average daily volume of 19.4 million is nearly double IEMG's 11 million. This provides tighter bid-ask spreads, making it preferred by active traders, such as institutional investors and options strategists, because transaction costs and execution depth matter more than a 0.72% annual fee held for a short time.

IEMG is better-suited for investors who want to maintain the fund over the long term, thanks to its low expense ratio and higher dividend yield. It also provides broader market exposure since it includes small-cap stocks, giving you a more complete slice of local economic growth. Another strength is that it edges out EEM over the long term, as demonstrated by its total return over the last five years.

Robert Izquierdo has positions in SK Hynix and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.