Best Emerging Markets ETF? See AVEM vs. DFAE vs. SPEM vs. VWO on #ETFBattles
Emerging Markets are up-and-coming countries in the midst of becoming established, fully developed economies. Adding exposure to Emerging Markets can help you diversify your investment risk and avoid home country bias. Today's ETF battle is an audience-requested quadruple header between four Emerging Market ETFs. Who wins? Find out right after this.
Welcome to a brand new 2025 season six of ETF battles, and I am Ronda Ligi, the chief culprit behind this madness. I hope everyone's New Year is off to a good start, and for our new viewers, hit the subscribe button to join our community. For longtime viewers, I am thrilled to see you again and to have you back with us.
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Today's ETF battle request is from a longtime viewer named Kep 19991, and it's a quadruple header between ETFs from Avantis, Dimensional, State Street Global, and Vanguard. The funds that we're going to be analyzing are focused on Emerging Market countries like India and Brazil, among others. Thank you, Kep, for another excellent battle suggestion.
Judging today's high-stakes contest, we've got Tony Dong with ETF Central and Mike Akins with ETF action. Guys, great to see you again. Welcome back. Good to be back, Ron. It's great to be here. Happy New Year, everybody.
Our four battle categories are cost, exposure strategy, performance, and then our mystery category. For mystery, that's where our judges can choose any factor or thing that you feel is pertinent and crucial to today's contest. Our judges can also nominate Wild Card ETFs as they feel there's better choices elsewhere, or they can opt for split decisions. I've got the scorekeeping duties, and at the end of the program, we will declare an overall winner. None of the battle outcomes on this program are ever predetermined or known in advance by myself or our judges.
Our first category is cost. Let's get started with Mike. Give us your analysis, please. You bet. I think you're looking at four very broad-based Emerging Market ETFs in this battle. All four of them are very well established in terms of AUM liquidity. It really comes down to breaking this into two buckets. You've got two broad-based passive strategies in SPEM and VWO, which are the cheapest, trading at seven basis points for SPEM and eight basis points for VWO.
Then you've got the two what I would call quasi-active from Avantis and Dimensional, which are really factor-type tilt strategies. They own the broad market. They have high overlap with SPEM and VWO, but they're doing it in a little bit different way, and those are going to come in a little higher because they are putting an active tilt to it. That's 33 basis points for AVEM and 35 for DFA.
Liquidity-wise, they're all trading pretty cheap. AVEM is a little bit higher on their spreads, about nine basis points spread compared to two, three basis points for the rest, so a little bit of an outlier there. Could just be timing in the data there because from a size perspective, it's pretty similar to the other strategies, but something to note. All that being said, I think it's hard to turn down SPEM and VWO as the winners in this category. They're the cheapest, they're the liquid, they're the largest, so from a pure cost perspective, it's got to go to those two strategies. Between the two of them, really can't give it to one or the other. I mean, SPEM's basis point cheaper but trades a little less than VWO, so it's pretty much a toss-up between those two.
That's a very good start. Thank you, Mike. Tony, how do you see it when it comes to cost? Mike covered most of it. For emerging market exposure, it's not going to get cheaper than VWO or SPEM for quite a while. It's worth noting that SPEM, as part of the SPDR portfolio lineup, actually saw its expense ratios slashed a few months ago, so if they continue with this trend, I think Vanguard might also jump in with an expense ratio cut just to make it more competitive because the Vanguard run really has been the longstanding fun. But right now, as it goes, you know, like Mike said, flip a coin. I flip my coin. I go with SPEM on this one.
That takes us next to expose your strategy, and Tony, you're still up, so break it down for us. Sure. VWO and SPEM are passive ETFs. They set out to sample slrec a benchmark index. For VWO, it is the FTSE Emerging Market index, and then for SPEM, it is a S&P index, so we can go down into how these indexes differ, but the point is for investors, you're getting exposure market cap weighted to all 11 sectors across Emerging Market countries.
Now, the Dimensional and the Avantis ones, like Mike said, they're quasi-active. They have some components of indexing, like the systematic manner in which they approach it, but they're not going to publish their index on their website. Avantis and Dimensional aren't going to tell you their secret sauce. What we do know is that it tilts towards stocks with higher profitability. It tilts toward stocks with higher value, and it tilts towards small caps, so you get exposure to the size value and profitability factors, which fall in line with the Fama French research.
Now, Avantis and Dimensional do approach this differently, and they have discretion with how to vary the portfolio, but the overlap with the two index ones is still there. On strategy, I very much like the factor approach, and when it comes to it, there's no better names in the market right now than Avantis or Dimensional, so again, flip a coin between them, and this time I'm going with Dimensional.
Very, very good analysis. Thank you, Tony. Mike, you're up on exposure strategy. How do you see it? Yeah, so I think Tony did a great job kind of laying out the basics there. A couple of things I would just add to this whole conversation. First and foremost, VWO and SPEM, their allocation to what is emerging and what is not based on the country allocations that they're using, driven mostly from S&P is they include South Korea, whereas VWO and SPEM consider South Korea as a developed market, and it's not included in their index. There's about a 10% allocation to those two ETFs that it's going to get you into that.
I guess debate whether or not it's emerging or not, and with that, it can cause some tracking air between the two. 10% is a fair amount of allocation, and recently there's been a lot going on in South Korea, so there's a lot going on. You always have to understand what's under the hood, how they build that out.
That being said, beyond that, the exposures across these portfolios are so very, very similar. They're all extremely diversified. They all have very good sector allocations. Their sector allocations are within a couple of percent of each other across the board, so really then it comes down to what Tony was alluding to with respect to come of your factor tilts, right? If I go through and just use like our derived analytics at ETF action where we score every single TF on a look-through basis and look at the Fama French factors, you know, I can tell you that again, on that note, it's just very mild differences between the bunch.
If anything, I would say Avantis is taking the biggest tilts. They're coming in with above average on a value tilt relative to the others, as well as a currently and above average on momentum, and all this is look-through analytics of the underlying companies. So Avantis has got a little bit of a value tilt and relative to the other portfolios is a little bit higher momentum within the portfolios. From that perspective, I like that other they're very, very similar. There not going to be a ton of tracking area between this, but I kind of like how Avantis is getting a little bit more exposure to that value and momentum, and with that, I'm going to give my exposure win to AVEM.
Next up is performance, so Mike, how do these funds compare when it comes to this particular category? Yeah, so I mean, like I said, performance is pretty tight when you look across these. I'm looking at a one-year the winner across the board is SPEM outperforming VWO by 19 basis points, 133% to 12.81%. That's as of returns from January 4th on a one-year look back period. Three-year returns across the board are within a few basis points of each other. I will know they all outperform the broad MSCI benchmark, being EM, but that's big part of that is because EM's got a higher expense ratio than the rest of them.
On a five-year basis, again, you're talking really close, but you do see AVEM pulling out to a bit of a lead on the five-year, 4% annualized return relative to 3.12 for SPEM and 2.9. DFA does not have a five-year track record yet, so can't compare that one in this one. All those outperform, you know, the EM, but again, that's a big part of that that expense ratio on that fund is so much higher.
If we look at that and then kind of dive in a little bit more to the risk statistics and think about it from risk-adjusted perspective, one thing that sticks out to me other than AVEM kind of winning on the longer-term five-year track record with some of those factor tilts is the up-down capture ratios. AVEM has a much higher, a better kind of offset of higher up and lower down capture ratios in the other three. I think, you know, they're so close it's now we're not talking about a huge number here. For example, the up ratio on AVEM over the last three years is 101%. All the others are below 100% on the up, and their down ratio shows 92%. I like that characteristics there are clearly, you know, as of on that three-year number adding some value there, so I kind o...
