Firstly we're finally able to get better access to emerging markets. iShares have had some relatively pricey ETFs available for a while. Now Vanguard and SSGA have joined the party:
Vanguard® FTSE Emerging Markets Shares ETF (VGE) has an Expense Ratio of 0.48%
SPDR® S&P ®Emerging Markets Fund has an Expense Ratio of 0.65%
The Vanguard ETF is cheaper but, like the iShares ETF, it's not clear to me if we'll be able to claim back (non-US) foreign tax withheld. The SPDR fund has a similar Expense Ratio to the iShares ETF but the fund, as far as I can tell, is Australian domiciled and does not hold an underlying US fund like the Vanguard and iShares ETFs. In principle foreign tax withheld may be claimed as a tax offset but this will depend on your individual tax situation.
The other two Australian funds are interesting from a diversification perspective. I've long been concerned that we're not diversified enough. When we invest in an ASX200 or ASX300 ETF or managed fund typically around 50% of the fund is in the top 10 ASX stocks (overweight banks and resources) and around 70% in the top 25. Most of our risk and return comes from a relatively small number of stocks. Similarly, an Australian Property ETF or index fund (at time of writing) will usually have around 1/3rd of its weighting just in the Westfield Group and Westfield Retail Trust. Market Vectors are attempting to mitigate these with the following funds:
The Market Vectors Australian Equal Weight ETF (Expense Ratio 0.35%) tracks a quarterly rebalanced index of the top 50-70 stocks. While it is still heavily weighted towards financials it may suffer less idiosyncratic (single stock) risk than a market-capitalisation weighted ETF. One concern I have are that it only rebalances quarterly, so can get quite far away from equal-weight in a short time (at time of writing, after only a couple of weeks of ETF operation, Newcrest Mining was sitting at 1.84% of assets while equal weight is closer to 1.3%). The bigger concern with that rebalancing is that it will lead to fund turnover so has the potential for short term capital gains which should be passed on to ETF holders. Until it builds a track record I'd be concerned about holding it unless perhaps in a Self Managed Superannuation Fund in the pension phase (where tax is not an issue).
The Market Vectors Australian Property ETF (Expense Ratio 0.35%) caps individual holdings to 10%. The two Westfield entities still add up to 20% but it does seem an improvement. Turnover may be an issue, although not to the same extent as the equal weight ETF. I'd still only be inclined to hold this in Superannuation but mainly because taxation of Australian Real Estate Investment Trusts is relatively messy.
