Best Emerging Markets ETF? See AVEM vs. DFAE vs. SPEM vs. VWO on #ETFBattles

Emerging Markets are upand cominging 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 6 of ETF battles and I am Ronda legi the chief Culp behind this madness Kilts charged well 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 and for longtime viewers well you know I am thrilled to see you again and to have you back with us and don't forget to check the description section below this video I've got viewer resources which include EB links um we've also got links to our program sponsor Direction and we've got links to our program judges so please get in touch keep your fantastic ETF battle suggestions coming send me your ETF ticker symbols in the comment section below or on our X feed at ETF guide now today's ETF battle request is from a longtime viewer named kep 19991 and it's a quadruple header between ETS from Advan dimensional State Street Global and Vanguard and the funds that we're going to be analyzing are focused on Emerging Market countries like India and Brazil among others thank you k for another excellent battle suggestion judging today's high stakes contest we've got Tony Dong with ETF Central and Mike Akin 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 so our four battle categories are cost exposure strategy uh performance and then our mystery category now for mystery that's where you are 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 so our first category is C let's get started with Mike give us your analysis please you bet well 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 um so really comes down to kind of breaking this into two buckets you've got two broad-based passive strategies uh in spem and vwo which are the cheapest trading at seven basis points for spem and eight basis points for bwo and then then you've got the two what I would call quasi active from uh vantis and dimensional which are really um Factor type tilt strategies they own the broad Market they have high overlap with spem and bwo but they're doing it in a little bit different way um and those are going to come in a little higher because they are putting an active tilt to it um and that's 33 basis points for avem and 35 for DFA um liquidity wise they're all trading pretty cheap uh avem is a little bit higher on their spreads about nine basis points spread compared to two three basis points for the rest so little bit of an outlier there could just be timing in 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 um turn down SPM and vwo as the winners in this category they're the cheapest they're the liquid they're the largest um 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 PM's basis point cheaper but trades a little less than vwo so it's pretty much 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 um for emerging market exposure it's not going to get cheaper than vwo or SPM for quite a while it's worth noting that SPM as part of the spdr portfolio lineup actually saw as expense ratios slashed a few months ago so you know 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 SPM on this one that takes us next to expose your strategy and Tony you're still up so break it down for us sure so vwo and SPM are passive ETFs they set out to sample slrec a benchmark index for vwo is the ftse emerging market index um and then for SPM it is a S&P index so we can go down into like you know 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 advantous ones like Mike said they're quasi active they have some components of index thing 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 you 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 you know fall in line with the F French research now Avantes 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 uh on strategy I I I very much like the uh Factor approach and when it comes to it there's no better names in the market right now than avantas were dimensional so again flip a coin between them and this time I'm going with a dimensional very very good analysis thank you Tony uh 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 um couple of things I would just add to this whole conversation first and foremost bwo and SPM um their allocation to what is emerging and what is not based on the country allocations that they're using uh driven mostly from uh SNP is uh they they include South Korea um whereas bwo and SPM 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 um I guess debate whether or not it's um uh emerging or not and with that it can cause some tracking air between the two is 10% is a 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 know you always have to understand what's under the hood how they build build that out that being said beyond that the exposures across these portfolios are so very very similar um they're all you know extremely Diversified um 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 kind of what Tony was alluding to with respect to come of your Factor tilts right and 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 the F French factors you know I can tell you that again on that note it's just very mild differences between between the bunch if anything I would say Avantis is taking the biggest tilts um they're coming in with above average um 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 vantis 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 bandis is getting a little bit more exposure to that value and momentum and with that I'm going to give my exposure win to AEM 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 uh the winner across the board is SP 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 um you know threeyear returns across the board are within a few basis points of each other I will know they all outperform the broad msci Benchmark uh being em but that's big part of that is because Em's got a higher expense ratio than the than the rest of them um on a fiveyear basis again you're talking really close but you do see AEM pulling out to a bit of a lead on the fiveyear uh 4% annualized return relative to 3.12 for spem and 2.9 uh DFA does not have a five-year track record yet um so can't compare that one in this one all those outperform um you know the em but again that's a big part of that that expense ratio on that on that fund is so much higher um so 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 AVM kind of winning on the longer term five-year track record with some of those Factor tilts is the up down capture ratios um AVM has a much higher a better kind of offset of higher up and lower down capture ratios in the other three um I think you know they're so close it's now we're not talking about a huge number here you know for example the up ratio on AVM 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 I kind of again just kind of lean into that AVM as my winner in the performance both on a you know backward basis over the fiveyear period that we can compare them all but also kind of looking forward I like the idea of getting at that value that value tilt I think the momentum is a byproduct of their underlying screening as well and I think that can lead to a little bit Alpha over time but um not going to be a big difference between these portfolios um across the board but I'll give the I'll give the win to AVM Tony you're up next for performance how do you see it so one thing I'd like to point out to readers is that for dimensional ETFs yeah the ETFs don't go back very far but they're usually very similar to existing dimensional mutual funds so for dfem uh the closest equivalent in my view would be DFX their merging Market portfolio uh Series 2 um that one actually does have a history going back to 1997 and the 5year uh total annualized returns for it is 4.94 uh that is compared to the 3.2 of the MCI the msci emerging market index and higher than AEM SPM and vwo so this is my caveat if these portfolios did in fact follow the same strategies throughout this time you can draw a bit of a connection there but I would still be cautious with that because well this is active management and just because they have a similar name doesn't mean that you know dfem is being managed in the same way as this fund so to hedge my uh conclusion there I'm going to agree with Mike and say that you know for the past and the future AVM is likely to maintain just a little bit of that Tailwind behind it just from those Factor Tils you know you're going towards momentum you're going towards profitability value and size these you know if done properly and fees kept reasonable like they are should continue to be a tail win for it so for me it's AVM as well that takes us next to our mystery battle category this is where our judges can pick a single factor or maybe multiple factors that they think are important to today's ETF contest so Tony what is your uh mystery category what is it and which of these ETFs wins it it it's Chinese Equity exposure to me right for vwo China's at 29% of the ETF and for the others It's relatively there I don't want to invest in China I think there is a substantial political risk in the near-term so over the next 10 years and you know just they don't have free and cap they don't have free and fair Capital markets like we do they have excessive amounts of government intervention and there's a lot of systemic risk present I could go on and on about that but my personal opinion is if you're going to do Emerging Markets it would help to remove China like it's I don't think it's a risk you're compensated for so I have a wild card ETF to throw in it's from Wisdom Tree uh it's called The Wisdom Tree Emerging Markets X China fund so basically it's all your Emerging Markets India Taiwan Mexico Saudi Arabia all the ones you know and love minus China uh it's a bit more expensive it's at 32 basis points but uh historically I think I'm gonna take a look at the returns here give us that ticker Tony while you're doing that uh XC it's new so it doesn't have a five fiveyear turn just X and c x China Wisdom Tree Emerging Markets X China fund and you know like gun to my head if someone told me I had to invest in Emerging Markets this would be the fund I Choose Or maybe an Indian Equity one um I'm just not very I'm not bearish on China but I'm not incredibly bullish either and if I can avoid it from an allocation perspective I'm going to do that very good analysis thank you Tony and Mike you're up next what is your mystery B category and which of these ETFs wins it yeah so well I had a couple mystery categories one was China um so I I'll let Tony did a great job explaining the rationale there I I tend to agree with it um I also think you know They're Not Alone um you know it's a it's a true if you want to talk about ESG factors like that's actually doing something you're removing an entire segment from an index you're taking a stance I I I think there's a lot there as well as I think from a return perspective it's G to be a bumpy ride um there and if you want you know there's there's a story to be made for emerging markets probably from somebody smarter than me um but I don't s i don't get sold too well on the on the China story right now in fact when we saw all that money flow into China in November when there was some posit news and some huge jumps based on you know the government saying they were going to do X Y and Z huge amount of money flew into the China ETFs and they got smoked um for the third time in the last five years driving in there and then all that money most of it came back out one thing I would note on uh Tony s you're not alone if you decide to go that route if you look over the past year in the Emerging Market ETFs the ex China category there's 14 ex-china ETFs now have brought in 7.3 billion of the 11 11.4 billion in the 992 ETFs that we classify as emerging large cap so the money is flowing into this x China space um and then if you throw in X soes and things like that it even gets bigger so that I think is well covered um my other mystery category is just understanding currency risk there are a lot of great strategies out there that will remove currency risk from your uh International portfolios now I'm not going to drop a bunch of tickers but there's a couple of really good ones out there EXT trackers Wisdom Tree um have strategies in this space I shares does where you can get access to a broad Diversified basket of merging market stocks um but then they hedge out um the exposure to that currency movements um you know it's hard to say um make a call on dollar has been strong for a long time but I think if you're just looking forward it's hard to see that changing so if you want kind of access to these companies that diversification but maybe remove some of that um risk associated with the dollar staying strong and um you know appreciating your returns of the underlying basket of Securities it's one way to think about it um so that that'd be my Myer mystery category um think about your country exposures and maybe remove China and then think about your currency exposure and maybe remove it all together yeah good points and certainly we remember what happened to the Russian ETFs pretty much got vaporized within a matter of days so don't know if that'll happen to the China ETFs but certainly it's on investors Minds as you guys pointed out thank you for that so now we've uh come to the part of the program where our judges can give us their overall battle winner so Mike you're up who wins the battle I think you're looking for exposure all four of these strategies provide great access um I would say you know maybe maybe consider something with ex-china um as a as a core um if you one of you I believe it might provide better returns um looking forward over the next three five 10 years but too um I think just from a standpoint of policy and um you know government accountability things of that nature it might make sense also um but from the four ETFs we have um I like avem it's not a huge win I'm not saying it's it's just a big out out um stands out to me that much rela to the others but I think just something about the analytics of the underlying portfolio I like that you know that a little bit more value tilt a little bit more um momentum in those Securities they're picking I think that could add some value over time um so I think that's my winner for the overall Tony your final chance to weigh in with your overall winner give it to us I once again do not allocate to emerging but if I had to deal with these four funds I just pick the cheapest one like for me that I don't know 10 15% Emerging Market allocation you have is literally there just as a hedge on you know oh oh crap what if I'm wrong about the US for the next 10 years what if China does outperform what if India's the next big superpower right it's just that little wh if so if I'm going to make that wh if allocation I want to do do it in the cheapest way possible and no disrespect to the people who work at avantage and dimensional they're phenomenal with what they do uh for Factor investing it's just that you know if I'm already going through all the efforts to put in an put in a merging Market allocation I'm not going to spend the extra time to think okay do I want Factor exposure here as well or do I want it in a market that's going to be a substantial portion of my portfolio that is if you're not going to make Emerging Markets a big part of your portfolio I don't see the need to also seek a factor til because the overall effect on your portfolio is going to be minim skill it's just not worth it just get the just get the cheap beta and be done with it so for me it'd be SPM there and that would be even over your wild card nomination XC you feel oh yeah XC is for like the person who really wants to get a good slug of Emerging Market exposure but you know doesn't want the 29% in China and like it's a lot of money has flowed into these and most of it's been from people who think this way but I personally don't think that way and I think your average retail investor isn't going to think about that as well well our judges have weigh in and according to our battle scorecard today's winner is a split decision between advantis and State Street Global uh we had Mike explaining his reasons for why he liked AEM in this contest he liked that value and that momentum tilt also that's an active strategy and it's pretty affordable too uh in in in one ETF package compared to some of those other active strategies um that maybe in a mutual fund or another rapper so uh it it uh it does have an affordable cost for what it's doing and then um even less cost is the index approach of spem which Tony likes and uh this is his what if trade uh that's of course uh adding Emerging Markets if the US in his opinion doesn't work out as a trade and of course uh both of our judges explained some of the risk with Emerging Markets I think both of them also agreed on the ex China being a a smart way to proceed uh which I also by the way agree with but great job to both of our judges on today's ETF contest well done and we couldn't have done it without you thanks Ron awesome thanks Ron be sure to visit the description section below this video get in touch with our judges Mike and Tony you can also check out our we got a link there to our program sponsor Direction so get in touch lots of good stuff down there and and what would you like to see in our next ETF Battle episode send me your ticker symbols in the comment section below or on our X feed at etfguide I'm Ronda Lei thanks for watching ETF battles we'll see you on the next show