Investors love exchange-traded funds. Critics can critique, but 2016's ETF inflows records were toppled with more than three months left in 2017. Underscoring the struggles faced by actively managed funds when it comes to retaining market share against ETFs, many of this year's most popular ETFs are cheap.
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In fact, data confirm that the bulk of 2017 inflows are going to ETFs with expense ratios of 0.1 percent per year or less. In the less category is the increasingly popular iShares Core MSCI EAFE ETF (BATS: IEFA), one of this year's top asset-gathering ETFs. IEFA is at the intersection of two prominent ETF preferences this year: Low fees and investors' desire for ex-U.S. developed markets exposure.
Year to date, IEFA has seen inflows of $16.8 billion, a total surpassed by just one other ETF, the iShares Core S&P 500 ETF (IVV). Importantly, IEFA has been a steady asset gatherer throughout all of 2017. The ETF competes with the Vanguard FTSE Developed Markets ETF (VEA).
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An Intense Contest
IEFA has added $1 billion and VEA over $500 million in the past couple sessions, and we have to point out that IEFA has now attracted more than $16.8 billion just year-to-date in new assets, said Street One Financial vice president Paul Weisbruch in a note out Wednesday. This puts the fund at a mammoth $36.8 billion level, and at a point where it is noticeably gaining ground as a giant in the EAFE space.
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VEA is third in year-to-date assets at $14.6 billion. The Vanguard ETF charges 0.07 percent per year, or $7 on a $10,000 investment, slightly less than IEFA's 0.08 percent annual fee. To start the fourth quarter, investors have added about $900 million combined to VEA and IEFA.
The largest developed markets ETF is the iShares MSCI EAFE ETF (EFA), to which IEFA was introduced as the low-cost equivalent several years ago.
There are some key differences between EFA, IEFA and VEA. EFA tracks the MSCI EAFE Index, while IEFA tracks a broader offshoot and VEA follows a FTSE Russell benchmark.
With 2,526 individual holdings it (IEFA) compares favorably to EFA (932) and VEA (1,859) in terms of overall portfolio diversification, a fact that is likely not lost on institutional investors in the space, said Weisbruch.
IEFA was the top asset-gathering ETF in the third quarter, No. 3 in the second quarter and No. 5 in the first quarter.
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Todd Shriber owns shares of VEA.
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