ETF conundrum

Voyager2002

Hello, hope someone can help. I seem to be misunderstanding something...

I am comparing two ETFs, one traded in London the other in the USA. Both are priced in dollars; both track the same index; one charges a slightly higher fee than the other. So I would expect the performance of the two to be very similar (the same volatility and slightly higher returns for the cheaper US version), but in fact Morningstar reports a lot of differences between them. How come?

They are:
iShares Core MSCI Emerging Markets ETF IEMG
http://performance.morningstar.com/funds/etf/total-returns.action?t=IEMG&region=usa&culture=en-US

and
iShares Core MSCI EM IMI UCITS ETF USD (Acc) | EIMI

http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0001377K&tab=1&InvestmentType=FE

A_T

Plot them on the same graph using your second link - they are almost exactly the same.

Voyager2002

A_T wrote: »

Plot them on the same graph using your second link - they are almost exactly the same.

Thanks, but why are the figures for 3-year return 11.83% for the London one but only 8.58% in the USA? Is that simply the difference between mean return and trailing return? Similarly the volatility: 16.19% versus 15.88%.

Basically these figures make the London version look better, yet if they track the same index in the same currency and the fee is lower in the USA then surely that would always be a better option?

Glen_Clark

Is it something to do with the dividend payment dates?

trevman

(US) IEMG distributes dividends https://www.ishares.com/us/products/244050/ishares-core-msci-emerging-markets-etf

(UK) EIMI reinvests dividends https://www.ishares.com/uk/individual/en/products/264659/ishares-msci-emerging-markets-imi-ucits-etf

bowlhead99

Voyager2002 wrote: »

Thanks, but why are the figures for 3-year return 11.83% for the London one but only 8.58% in the USA? Is that simply the difference between mean return and trailing return? Similarly the volatility: 16.19% versus 15.88%.

Surely your difference is just that when you are visiting the Morningstar UK site as a UK based investor, the Morningstar.co.uk graph of "growth of £1000" and associated percentage performance figures in the tables, are in pounds, because that's how UK investors like to view the returns of one fund compared to another, on that site.

Whereas the morningstar.com one, set up for the American market, gives returns always displayed in USD.

As mentioned by others, if you view both funds through the same front-end and display them in the same manner, you should get something comparable.

The difference between dollars and pounds is always going to be striking because of movements in FX rate. For example in the UK Morningstar site, returns for calendar year 2015, 2016, 2017 for the UK one was -9.9%, 31.4%, 25.9%, while from the Morningstar US site it said the returns were -14.31%, 10.29%, 37.4%.

So when you are sitting in the US looking at how your emerging markets investments performed in 2016, you get a nice reasonable 10% ish in dollars. But dollars became worth a lot more pounds part way through that year, as a result of Brexit vote, and to a UK person measuring the return in pounds he got 31%.

Situation reversed a bit as sterling recovered in 2017, so when the Americans got a 37% return in dollars, our return in sterling was 'only' 26% that year.

So, you might be thinking of buying the USD class (or maybe USD class is the only one available) but if you are looking at it on the Morningstar UK site they will conveniently rebase performance charts and tables to GBP so you can compare with the various rival investment trusts and global or emerging funds that are priced in GBP or Euro.

JohnRo

Be aware several brokers are currently barring UK customers from making US domiciled ETF purchases due the US ETF providers failing to meet the PRIIP regulation which requires a KID for the product being sold.

Voyager2002

bowlhead99 wrote: »

So, you might be thinking of buying the USD class (or maybe USD class is the only one available) but if you are looking at it on the Morningstar UK site they will conveniently rebase performance charts and tables to GBP so you can compare with the various rival investment trusts and global or emerging funds that are priced in GBP or Euro.

Thank you: that is what I was missing.

In fact I have a sum in US dollars that I need to invest, and so am interested in the dollar return on a dollar-priced investment. I had not realised that the Morningstar UK site, when giving returns on an investment priced in dollars, gave those returns in sterling and so introduced FX movements into the result.

Voyager2002

JohnRo wrote: »

Be aware several brokers are currently barring UK customers from making US domiciled ETF purchases due the US ETF providers failing to meet the PRIIP regulation which requires a KID for the product being sold.

Yes, that is a real nuisance. I would imagine that it is not "several" but all brokers, since the PRIIP regulation is part of EU law that has now come into force.

In practice many US domiciled ETFs do seem to have KIIDs and so the purchase can go through.