Foreign Affairs


Invest-Notes has always been a big advocate of investing in enterprises operating beyond the borders of the United States. And while the world has not turned out to be quite as flat as predicted during the close of the last millennium, this increasingly volatile terrain remains a viable place to look for foreign investment opportunities. Almost a quarter of my personal retirement accounts are invested in stocks and bonds from non-U.S. companies.

Emerging Markets

Among the sectors that can be found across international equities, the most (in)famous is likely Emerging Markets. The most popular exchange-traded fund (ETF) proxy for this sector is EEM, iShares MSCI Emerging Markets. Up around 35% since the regime change in Washington, DC a year ago, this remains a scary place for many individual investors. Crushed during the market mayhem in 2008-2009, EEM has taken a longer, more volatile route back to a solid uptrend. Which might just make this a time for those without exposure in this space to consider adding some international flavor.

Foreign Investment - BRIC Nations Brazil, Russia, India and ChinaA quick comment before we do some analysis. Early on Emerging Markets was a catchphrase for the BRIC counties – Brazil, Russia, India, and China. These days Mexico, South Africa, and Taiwan also play supporting roles with walk-ons from countries like Turkey, Thailand, and the Philippines. All-in, most Emerging Market indexes offer up around 10% of total world equity capitalization making this suitable only as a small part of your total foreign investment portfolio. In my case, 6% is invested in a competitor to EEM, Vanguard’s VWO. Today we’ll compare and contrast these two ETFs with an eye to the future based on some recent events.


While the biggest difference between EEM and VWO is the number of stocks included in their respective portfolios, a quick comparison points up a couple of points to consider:

EEM – iShares Emerging Markets

  • MSCI index
  • 900 stocks with around 9% turnover annually
  • 1.25% yield
  • 27% of the index value is in the top ten stocks, seven of which are Chinese

VWO – Vanguard Emerging Markets

  • FTSE index
  • 4,000 stocks with around 13% turnover annually
  • 2.25% yield
  • 17% of the index value is in the top ten stocks, five of which are Chinese