Similar ETFs Can Confuse You

The explosive growth of exchange-traded funds (ETFs)—there are now more than 1,400 with $2 trillion in total assets—often makes it tricky to choose the right one, especially when several in a single category have similar names. For example, there are a least a half dozen similar-­sounding ETFs focused on the Standard & Poor’s 500 stock index…20 investing in diversified emerging markets…and six tracking low-volatility US stocks. But similar names sometimes mask big differences in how ETFs invest. Popular ETFs that aren’t as similar as they seem…

iShares MSCI Emerging Markets ETF (EEM) vs. Vanguard FTSE Emerging Markets ETF (VWO). The performance of these two ETFs can ­diverge significantly because they track different underlying indexes. Most notably, the iShares fund recently had 14% of its assets in South Korean stocks, including its largest holding, Samsung Electronics. The Vanguard fund excludes South Korea, which it considers a developed nation. VWO’s performance in the past year is triple that of EEM in part because Korean stocks have struggled.

SPDR S&P 500 ETF (SPY) vs. iShares Core S&P 500 ETF (IVV). The SPDR fund is required to pay out its dividends in cash…the iShares fund reinvests its dividends, so it’s likely to perform slightly better in bull markets (because the reinvested dividends add to your profits) but slightly worse in bear markets.

iShares MSCI USA Minimum Volatility ETF (USMV) vs. PowerShares S&P 500 Low Volatility ETF (SPLV). Both smooth the ups and downs of the market. But the iShares fund strictly limits the percentage of total assets it can invest in any individual stock or sector, which has led to lower volatility compared with the PowerShares fund.