Emerging Markets Index

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JohnnyFive
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Emerging Markets Index

Post by JohnnyFive »

I am a believer in the RAFI methodology and was aware of the PowerShares FTSE RAFI Emerging Markets ETF (PXH) but just came across the Ishares version...iShares Emerging Markets Fundamental Index ETF (CWO). Apparently, they both track the same index. Anyone have any idea why there is such a huge disparity in their results? Any insights here would be greatly appreciated.
IPer
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Re: Emerging Markets Index

Post by IPer »

The ishares emerging is (EEM) and looks about the same as PXH on a 5-year, a difference in fees of about .15%.
There is a CWO.TO it's 5 year looks pretty similar to the PXH as well, it is on the Toronto (Canada) board.
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Re: Emerging Markets Index

Post by YDNAL »

JohnnyFive » Sat Sep 27, 2014 9:36 am wrote:I am a believer in the RAFI methodology and was aware of the PowerShares FTSE RAFI Emerging Markets ETF (PXH) but just came across the Ishares version...iShares Emerging Markets Fundamental Index ETF (CWO). Apparently, they both track the same index.
They are not benchmarked the same (per Morningstar).
PXH = MSCI ACWI Ex USA Value NR USD (318 holdings)
CWO = MSCI EM GR CAD (266 holdings)

CWO's largest 2 holdings are iShare MSCI Taiwan (13.18% of portfolio) and India 50 (6.04%) - that's 20% of assets. That's as far as I care to look. :)
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JohnnyFive
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Re: Emerging Markets Index

Post by JohnnyFive »

Not sure what you guys mean. They both benchmark against the same index. See here:

PXH:
https://www.invesco.com/portal/site/us/ ... ductId=pxh

Product Details

The PowerShares FTSE RAFI Emerging Markets Portfolio (Fund) is based on the FTSE RAFI Emerging Markets Index ND (Index). The Fund will normally invest at least 90% of its total assets in securities that comprise the Index and American Depository Receipts (ADRs) based on the securities in the Index. The Index is designed to track the performance of the largest Emerging Market equities, selected based on the following four fundamental measures of firm size: book value, cash flow, sales and dividends. The equities with the highest fundamental strength are weighted according to their fundamental scores. The Index is computed using the net return, which withholds applicable taxes for non-resident investors. The Fund and the Index are reconstituted annually.


CWO:
http://www.blackrock.com/ca/individual/ ... cale=en_CA

INVESTMENT OBJECTIVE

iShares Emerging Markets Fundamental Index ETF seeks to track, less fees and expenses, the FTSE RAFI Emerging Index - a broad and diversified index of emerging market companies, which takes account of total cash dividends, free cash flow, total sales, and book value of each constituent. The Manager may (at its discretion and without unit holder approval) change to another widely recognized emerging markets index. * Effective May 24, 2013 the name of the fund was changed from iShares Broad Emerging Markets Fund to iShares Emerging Markets Fundamental Index ETF
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JohnnyFive
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Re: Emerging Markets Index

Post by JohnnyFive »

And their difference in 5 year doesn't look the same to me. CWO = 4.03 PXH = 2.52
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Re: Emerging Markets Index

Post by IPer »

One says tracks and the other says "based on", there is a difference.
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JohnnyFive
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Re: Emerging Markets Index

Post by JohnnyFive »

Pretty sure all their RAFI funds say "based on" in their description, and, yet, there is much less tracking error with their other funds.
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Re: Emerging Markets Index

Post by YDNAL »

JohnnyFive » Sat Sep 27, 2014 9:36 am wrote:I am a believer in the RAFI methodology and was aware of the PowerShares FTSE RAFI Emerging Markets ETF (PXH)...
JohnnyFive » Sat Sep 27, 2014 10:16 am wrote:And their difference in 5 year doesn't look the same to me. CWO = 4.03 PXH = 2.52
Then, why is your "belief" seemingly wavering?
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JohnnyFive
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Re: Emerging Markets Index

Post by JohnnyFive »

Wow. There has yet to be a constructive post in this thread. My belief in the RAFI methodology is not wavering. My belief in the ability to accurately track an emerging market index, is. Having said that, I would love for someone who actually has any sort of knowledge on this to weigh in.

[OT comments removed by admin LadyGeek]
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Re: Emerging Markets Index

Post by YDNAL »

JohnnyFive wrote:Wow. There has yet to be a constructive post in this thread. My belief in the RAFI methodology is not wavering. My belief in the ability to accurately track an emerging market index, is. Having said that, I would love for someone who actually has any sort of knowledge on this to weigh in.

[OT comments removed by admin LadyGeek]
I gave you what Morningstar considers to be the appropriate benchmark. I posted the holdings in each fund and dissimilar allocation between them. Perhaps, foolishly thinking it may be helpful in any way.

That said, if you believe that M* "has no knowledge on this to weigh in, or knows nothing about these two funds," my suggestion is contact them directly. By the way, cutting/pasting information from a fund's overview tab is not "knowledge."

Good luck!
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JohnnyFive
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Re: Emerging Markets Index

Post by JohnnyFive »

So, is it your contention that Morningstar knows what index these funds are seeking to track, more than the fund manager/company themselves? Otherwise, your point is a ridiculous one. I cut and pasted from the fund's page to show that the Morningstar information was not correct, not to show that I had knowledge on the funds. I asked for information specifically BECAUSE I wasn't familiar enough with these funds. You came on here providing information (misinformation, actually), obtained from a third party website (Morningstar) that everyone (including me) has access to, which really shed no light whatsoever, on the initial question.

Both funds claim to track the same index, and, yet, their holdings and results are vastly different. That was the initial question posted, and, in fact, still is the question. You have shed no light on this, and, your "contributions" to this thread have been meant, really, to antagonize. Not cool
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Doc
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Re: Emerging Markets Index

Post by Doc »

YDNAL wrote:
JohnnyFive » Sat Sep 27, 2014 9:36 am wrote:I am a believer in the RAFI methodology and was aware of the PowerShares FTSE RAFI Emerging Markets ETF (PXH) but just came across the Ishares version...iShares Emerging Markets Fundamental Index ETF (CWO). Apparently, they both track the same index.
They are not benchmarked the same (per Morningstar).
PXH = MSCI ACWI Ex USA Value NR USD (318 holdings)
CWO = MSCI EM GR CAD (266 holdings)

CWO's largest 2 holdings are iShare MSCI Taiwan (13.18% of portfolio) and India 50 (6.04%) - that's 20% of assets. That's as far as I care to look. :)
Landy, You are looking at the MPT benchmark on Morniningstar and they may be different because of the currency. If you use the pull down tab on the M* portfolio page you can see other benchmarks. One is the (primary) prospectus benchmark and another is the (M* ?) analyst's assigned benchmark. Both funds show the FTSE RAFI Em as the primary benchmark on M*'s page.

But one of these funds may have changed its benchmark recently. WAG. You need to go to the fund's own web page to get this type of info.
Last edited by Doc on Sat Sep 27, 2014 11:28 am, edited 1 time in total.
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Ketawa
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Re: Emerging Markets Index

Post by Ketawa »

CWO is a Canadian ETF. I'm not familiar with how this works, but I would assume you can't buy it if you are a US investor. I can't buy it on TD Ameritrade. Just guessing again, but the performance difference compared to PXH might be caused by CWO being denominated in the Canadian dollar, if that is how Canadian ETFs work.
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Re: Emerging Markets Index

Post by Fclevz »

PXH is a U.S. ETF, CWO is Canadian.
Perhaps a differing currency fluctuation issue is making the returns seem different.
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Re: Emerging Markets Index

Post by Ketawa »

According to the fact sheet for CWO:
Prior to July 1, 2012, the investment objective of CWO was to replicate, to the extent possible, the performance of the MSCI Emerging Markets Index. Consequently, performance prior to July 1, 2012 for CWO may have been materially different than it would have been under the current respective investment objectives.
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Re: Emerging Markets Index

Post by LadyGeek »

I removed some off-topic comments. As a reminder, see: Forum Policy
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
Please stay factual.
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Doc
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Re: Emerging Markets Index

Post by Doc »

Ketawa wrote:According to the fact sheet for CWO:
Prior to July 1, 2012, the investment objective of CWO was to replicate, to the extent possible, the performance of the MSCI Emerging Markets Index. Consequently, performance prior to July 1, 2012 for CWO may have been materially different than it would have been under the current respective investment objectives.
From M* the current portfolios look very similar.
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Re: Emerging Markets Index

Post by Ketawa »

Doc wrote:
Ketawa wrote:According to the fact sheet for CWO:
Prior to July 1, 2012, the investment objective of CWO was to replicate, to the extent possible, the performance of the MSCI Emerging Markets Index. Consequently, performance prior to July 1, 2012 for CWO may have been materially different than it would have been under the current respective investment objectives.
From M* the current portfolios look very similar.
Could be, I was only looking for an explanation for this:
JohnnyFive wrote:Anyone have any idea why there is such a huge disparity in their results? Any insights here would be greatly appreciated.
JohnnyFive wrote:And their difference in 5 year doesn't look the same to me. CWO = 4.03 PXH = 2.52
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Re: Emerging Markets Index

Post by backpacker »

Ketawa wrote:According to the fact sheet for CWO:
Prior to July 1, 2012, the investment objective of CWO was to replicate, to the extent possible, the performance of the MSCI Emerging Markets Index. Consequently, performance prior to July 1, 2012 for CWO may have been materially different than it would have been under the current respective investment objectives.
Johnny, this is the answer you're looking for. The fund was essentially a different fund before 2012. Sometimes fund companies "repurpose" old funds instead of closing them. That's what happened here. So any results before July 1, 2012 are irrelevant.

Obviously, PXH is the better fund because it has lower fees and tracks the same index.
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Re: Emerging Markets Index

Post by #Cruncher »

JohnnyFive wrote:Wow. There has yet to be a constructive post in this thread.
Unfortunately, JohnnyFive, your own posts aren't immune from this criticism. For example
in your [url=http://www.bogleheads.org/forum/viewtopic.php?p=2205533#p2205533]original post[/url] you wrote:Anyone have any idea why there is such a huge disparity in their results?
and in [url=http://www.bogleheads.org/forum/viewtopic.php?p=2205565#p2205565]this post[/url] you wrote:And their difference in 5 year doesn't look the same to me. CWO = 4.03 PXH = 2.52
and in [url=http://www.bogleheads.org/forum/viewtopic.php?p=2205659#p2205659]this post[/url] you wrote:Both funds claim to track the same index, and, yet, their holdings and results are vastly different.
However, in none of these posts do you specify the time period nor the source of your data.

When I look at the web pages for CWO and PXH I see the following returns for the 1, 3, and 5 years ending 6/30/2014:

Code: Select all

                                 1-Year     3-Year     5-Year
                                 ------     ------     ------
CWO                              14.52%     (2.51%)     6.79% 
PXH NAV                          15.18%     (3.21%)     6.37% 
PXH Market Price                 14.82%     (3.47%)     6.47% 
FTSE RAFI Emerging Mkts Index    14.31%     (2.53%)     7.83% 
MSCI Emerging Mkts Index         14.31%     (0.39%)     9.24%
CWO doesn't specify whether its figures are based on Net Asset Value or on Market Price. But in either case they don't differ much from PXH. CWO did perform slightly better than PXH for the 3-year and 5-year periods. But this could be due to it following the MSCI index for all but the last two years -- as Ketawa points out above. And as the last two lines show above, the MSCI index did better than the RAFI index for these two periods.

Their holdings are not "vastly different". By country they are almost identical:

Code: Select all

Country                            CWO        PXH        Diff
--------------------------       ------     ------     -------
China                            22.78%     22.69%     (0.09%)
Brazil                           21.33%     21.72%      0.39% 
Taiwan                           13.44%     13.56%      0.12% 
Russia                           10.46%     10.26%     (0.20%)
South Africa                      7.90%      7.93%      0.03% 
India                             6.86%      6.84%     (0.02%)
Mexico                            4.25%      4.55%      0.30% 
Malaysia                          2.55%      2.55%      0.00% 
Turkey                            2.54%      2.52%     (0.02%)
Thailand                          2.29%      2.46%      0.17% 
Total 10 Largest                 94.40%     95.08%      0.68% 
And, except for CWO apparently using other iShares funds for Taiwan and India, their largest holdings are about the same too.

Code: Select all

Holding                            CWO        PXH        Diff
--------------------------       ------     ------     -------
iShares Taiwan ETF EWT           13.11%       n/a        n/a
iShares India ETF INDY            6.20%       n/a        n/a
Gazprom                           3.98%      4.20%      0.22% 
Petrobras                         6.35%      6.38%      0.03% 
China Cons Bank                   2.63%      2.64%      0.01% 
China Mobile                      2.56%      2.58%      0.02% 
Indus & Comm Bank of China        2.36%      2.38%      0.02% 
Itau                              2.10%      2.11%      0.01%
Here is a comparison of other fund facts:

Code: Select all

                CWO        PXH
             ---------   -------
Expenses     0.70%        0.49%
Mkt Value    64M          394M
Inception    4/7/2009     9/27/2007
Traded       Toronto      NYSE
Based on these, I'd favor PXH -- particularly if I were a US investor. One specific problem with CWO is that it uses two funds, iShares MSCI Taiwan ETF and iShares India 50 ETF INDY, to cover its exposure for these two countries. But it doesn't appear that these two funds follow the fundamental RAFI weighting methodology that CWO does.
Fclevz wrote:PXH is a U.S. ETF, CWO is Canadian. Perhaps a differing currency fluctuation issue is making the returns seem different.
CWO does indeed trade on the Toronto stock exchange. But even if the ETF is denominated in CAD rather than USD, this wouldn't cause its returns to differ. For an example, see my post, Re: European ETF investor - how to get rid of currency risk.
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Re: Emerging Markets Index

Post by jaab »

#Cruncher wrote:But even if the ETF is denominated in CAD rather than USD, this wouldn't cause its returns to differ.
True, but your data provider has to get the currency conversion right. For example, in the following chart CWO.TO is what Yahoo Finance delivers. CWO.USD is what it looks like after applying the CAD>USD rate (QUANDL/CADUSD). Start date is 2012-06-04, daily data, adjusted close prices:

Image
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