What are the differences between the iShares Core Emerging Markets IMI and iShares Emerging Markets ETFs?

Editor’s Note: This article was written when the iShares Emerging Markets ETFs (ISIN IE00B4l5YC18/IE00B0M63177) had a TER of 0.68%/0.75%. That TER has now changed to 0.18%. This means that I now consider this to be a reasonable choice for an emerging markets ETF.

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If you are looking to invest in Emerging Markets equities through an ETF you might have realized that iShares has two very similar offerings: the iShares Core Emerging Markets IMI ETF and the iShares Emerging Markets ETF. What are the differences between these funds?

The table below summarizes the main differences between both funds:

These funds track different indexes. The MSCI Emerging Markets IMI is a broader index than the MSCI Emerging Markets index (99% vs. 85% of free float market cap in each country). The MSCI Emerging Markets IMI index tracks more companies, from small cap to large cap while the MSCI Emerging Markets index does not invest in small cap companies (2771 vs. 1136 companies tracked).

Even though the funds track a different amount of companies the performance of both indexes is similar. This is expected because the majority (~85%) of MSCI Emerging Markets companies are part of the MSCI Emerging Markets IMI companies.

source: MSCI

The iShares Core MSCI Emerging Markets IMI ETF is significantly cheaper than the iShares MSCI Emerging Markets ETF – the TER for the former (0.18%) is around 3-4x smaller than the TER of the latter (0.68% or 0.75%).

This difference in TER can have a major impact on portfolio returns.
I compared the hypothetical performance of a portfolio with each fund. Assuming that the portfolio would have a 3% yearly growth rate and that the portfolio would have an annual contribution of 12 000 EUR. I concluded that after 20 years the portfolio with the iShares Core MSCI Emerging Markets IMI ETF grew to ~ 325,338 EUR while the portfolio with the iShares MSCI Emerging Markets ETF only grew to ~307,336 EUR.

The iShares Core MSCI Emerging Markets IMI ETF is cheaper because it is part of the iShares family of Core ETFs. These are broad index ETFs meant to be used as a foundation for a portfolio which iShares sells at low fees.