Compare ETFs Based on S&P 500, Russell 2000 and MSCI EM - vrk100 - 26May2022

Compare ETFs Based on S&P 500, Russell 2000 and MSCI EM

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(This is for information purpose only. This should not be construed as a recommendation. Please consult your financial adviser before taking any dive.)

 

 

 

(please check update dated 15Nov2023 at the end of the blog) 

 

 

Passive funds consisting mainly of index and exchange-traded funds, popularised by mutual fund industry doyen Jack Bogle of the Vanguard Group, have gained traction globally in the past seven or eight years trumping the performance of actively managed funds.

 

Exchange-traded funds (ETFs) have gained massive assets and they are more popular than index funds. Passive funds include both ETFs and index funds. The speciality of ETFs is they are traded on stock exchanges, like, stocks. Investors can directly buy them through stock exchanges, unlike index funds which have to be transacted directly through mutual funds.

 

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Related Articles:

 

ETF compare - Nifty BeES vs Junior BeES 

India Equity ETF Risks and Returns

BSE 500 and S&P 500 Indices Returns

NSE Indices Comparison

 

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Compare ETFs

Here, I compare four ETFs based on S&P 500, Russell 2000 and MSCI Emerging Markets Indices; and I've also included a gold ETF for comparison purposes. All these ETFs are traded in the US and managed by BlackRock Inc, the world's largest asset manager. Their brief details are:

 

(i) iShares Core S&P 500 ETF (symbol / ticker IVV) - its underlying benchmark index is the S&P 500 index and it seeks to track the investment results of an index composed of large-capitalization U.S. equities.

 

(ii) iShares Russell 2000 ETF (IWM) - its underlying is the Russell 2000 index and it seeks to track the investment results of an index composed of small-capitalization U.S. equities.

 

(iii) iShares MSCI Emerging Markets ETF (EEM) - its underlying index is the MSCI Emerging Markets index and it seeks to track the investment results of an index composed of large- and mid-capitalization emerging market equities.

 

(iv) iShares Gold Trust (IAU) seeks to reflect generally the performance of the price of gold.

The comparison is given in the following images obtained from iShares website (for the latest comparison, input the symbols of your favourite ETFs):

1. Overview of the four ETFs: The latest net assets of IVV are USD 288 billion and those of IWM are USD 52 billion. Expense ratio of IVV is just 0.03 per cent as compared to 0.19 per cent for IWM.

2. NAV and portfolio characteristics: The beta and standard deviation of IWM are higher compared to IVV, reflecting higher risks for the small-cap based IWM versus the large-cap based IVV.

 3. Equity PF characteristics and MSCI ESG fund rating: Valuation ratios, P/E and P/B, are lower for IWM as compared to IVV--thus IWM looks more attractive.

4. Top 10 holdings: IVV has 504 components, dominated by Apple Inc (6.5% weight in the ETF), Microsoft (5.8%) and Amazon (2.7%).

 

Whereas, IWM has 2,006 small-cap stocks. The stock with the biggest share in the ETF is Ovintiv Inc, with a stake of just 0.55 per cent, followed by Antero Resources (0.49%) and Chesapeake Energy (0.44%). 

This tells you that IVV ETF is highly concentrated as compared to IWM, because S&P 500 index is dominated by technology and communication giants.

5. Sector breakdown: Top three sector concentration for IVV is 52.8%, consisting of IT (26.6%), Health Care (14.9%) and Financials (11.2%). Whereas, the top three sector concentration for IWM is 47.4%, consisting of Financials (16.8%), Industrials (15.6%) and Health Care (15%).

6. Month-end performance as on 30Apr2022: On a one-year basis, IVV generated a return of 0.18%, whereas IWM provided a negative return of 17%. On a 10-year basis, IVV has 13.6% compounded annual return and IWM has 10.1%.

Other popular ETF based on Russell 2000 index is Vanguard Russell 2000 ETF (VTWO), with assets of USD 5.5 billion and expense ratio of 0.10 per cent. 

There are various ETFs based on S&P 500 index -- you can find them here and here.

 

 

Conclusion:

Overall, IVV ETF based on S&P 500 index is highly concentrated dominated by technology and communication giants in the US.  It has lower expense ratio and entails lower risk as reflected in beta and standard deviation measures. 

IWM ETF based on Russell 2000 index does not suffer from concentration risk. But, it has higher expense ratio and riskier (measured by beta and standard deviation) than IVV ETF. IWM has a more balanced portfolio, by stocks and sectors.

 

Both these ETFs have decent trading volumes as per data accessed on 26May2022 from ETF.com website. 

Many experts in the US are of the view that going forward, the small-cap US stocks may do well. They are expecting the phenomenon of 'mean reversion' (the tendency of assets to revert to their mean) to catch up with the technology giants in the S&P 500 index; and due to the mean reversion, the technology giants' outperformance of the past 10 years may not continue in future.

Based on the relative under-performance of small-cap stocks versus the technology giants in the past five to 10 years, the market veterans are optimistic about the small-cap stocks in the US. The implication for the investors is IWM ETF based on Russell 200o index may do better than IVV ETF, provided the investors are able to stomach higher risks involved with the IWM ETF.  This is just my personal opinion, and this should not be construed as investment advice--this is just for information purpose only. Prospective investors should consult their registered investment adviser before making any investment decision.

 

 

 

References:

 

Tweet 17Apr2021 ETFs compare

Tweet 31Jan2021 ETFs compare

Tweet 20Aug2019 ETFs compare

 

ETF comparison tool 

 

ETF comparison tool - IVV vs IWM

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P.S.: The following are added after the blog was written on 26May2022:

 

Update 15Nov2023: Eighteen months ago, I expected Russell 2000 index (small caps) would do better than S&P 500 index (large caps) going forward. But after 18 months since the blog was written, S&P 500 rose by 13%, Russell 2000 remained same, MSCI EM index was down 4.7%, gold up 6.2% in the past 18 months.

 

My view proved to be wrong.

 

In markets, patience is the least appreciated trait. Russell 2000 index has been testing patience of investors. On 14Nov2023, Russell 2000 (small caps) index rose by 5.4% vs S&P 500's rise of 1.9%. The thesis of beaten down US small caps doing better than large caps may take some more time to play out.

 

Interestingly, as per ishares.com, Microsoft is the biggest stock in S&P 500 index with a weight of 7.35% versus second-placed Apple Inc's 7.33% as at the end of 13Nov2023. Top 10 stocks' weight in the S&P 500 (considering Google's A and C shares as one) is 33.4%.

 

Images of comparison of ETFs as per iShares as at the end of 14Nov2023 >

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Weblinks and Investing

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Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

CFA Badge

 

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100

 

ETF Compare - Nifty BeES and Junior BeES - vrk100 - 30Jan2022

ETF Compare - Nifty BeES and Junior BeES 

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(Please check related blog dated 15Feb2023 on Nifty Next 50)

Nippon India ETF Nifty BeES and Nippon India ETF Junior BeES are one of the oldest exchange-traded funds in India. They started trading on stock exchanges in 2001 and 2003 respectively.

The underlying indices of Nifty BeES and Junior BeES are Nifty 50 index and Nifty Next 50 index respectively. As they have the longest track record in India, let us explore how they have performed over the years.

Annual Returns

Table 1 and 2  delineate how the two ETFs have performed on an annual basis from 2004 to 2021. They also portray the asset size and expense ratios of the ETFs as at the end of the respective calendar years.

You can see that Nifty BeES' assets under management (AUM) grew from merely Rs 23 crore at the end of 2004 to Rs 5,677 crore by end-2021. With Junior BeES, AUM increased from a meagre Rs 9 crore to Rs 2,294 crore in the same period.

Of late, ETFs have been gaining traction with Indian stocks attracting a wider range of investor community. 

Expense ratios of these ETFs are competitive with competition growing among the mutual fund industry with several fund houses launching various kinds of ETFs based not only on the broader indices, but also based on several other narrow (dubbed as smart) indices.

As on 31Dec2021, the expense ratios of Nifty BeES and Junior BeES are 0.05 per cent and 0.17 per cent respectively--they are competitive; but could undergo changes depending on the changes in asset size and other market factors.

Readers can see that in some years one ETF does well and in others another ETF performs better.

On the NSE stock exchange, these two ETFs have decent volumes. Volumes on BSE are considerably lower.

(please click on the images to view better)

 

 

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Read more: 

BSE 500 vs S&P 500 Indices 

Who is Eating my Gold ETF Return?

Foreign Investors Waning Interest in Indian Stocks

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Modi Rally, Recency Bias and Stock Market Returns

Indian Mutual Funds and The Art of Ripping Off Investors  

Do Paint Stocks and Crude Oil Tango?

Weblinks and Investing

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Trailing Returns

Table 3 depicts trailing returns of Nifty BeES ETF and Junior BeES ETF from 1-year to 10-year period. It also provides details of risk measures, namely, Sharpe ratio and tracking error.

Sharpe ratio is a measure that describes the return earned per unit of risk taken to earn the returns. The higher the ratio, the better for the investor. Nifty BeES has got a higher Sharpe ratio.

Tracking error shows how closely the ETF is able to track the performance of the underlying index. A lower tracking error indicates that the ETF is able to match the performance of the underlying index with a smaller deviation.

From an investor's viewpoint, the lower the tracking error, the more desirable the ETF. At 0.11 per cent, Nifty BeES has lower error versus Junior BeES' 0.25 per cent.

If you look at table 3, you could see the difference  between the 10-year return of Nifty BeES and its underlying index is just 0.20 percentage points (or 20 basis points). Whereas, the difference is higher at 0.80 percentage points between the Junior BeES and its underlying index. This greater difference results in the latter having a higher tracking error.

The return profile presents a mixed picture. In some years, Nifty BeES does well and in others, Junior BeES does well. For example, on a 10-year trailing basis, Junior BeES has provided superior returns; but Nifty BeES did better on a 5-year trailing basis.

 

Overall Score

Table 4 provides how the two ETFs stack up on parameters outlined against them. 

To sum up, the reader can decide for herself how to choose between these two ETFs based on the analysis provided above. Interested readers may access my other articles presented on this blog to get a better grip on mutual funds and other financial instruments (in the past decade, this blogger has contributed almost 300 articles on financial markets). 

Finally, it is better to read the important documents available with the fund house before considering the ETFs for investment. 

This is not a recommendation for either of the ETF. This is just an attempt to bring the risks and returns inherent in them so that the reader can decide for herself. Happy investing!

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Additional data: As per blog post dated 24Jan2022 - NSE Indices Comparison>

Nifty Indices trailing returns as on 31Dec2021 >

 

References:

Nifty 50 Index Evolution Over a Decade

NSE Indices Comparison   - compare Nifty 50, Nifty Next 50, Nifty 100 and Nifty 500

Mutual fund asset class returns 

India Equity ETF Risks and Returns 31Dec2021  

BSE 500 versus S&P 500 Indices 31Dec2021 

 

Nippon India MF factsheet for Jan2022 (data end-31Dec2021)

 

Value Research compare Junior BeES and Nifty BeES

 

Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

CFA Charter credentials  - CFA Member Profile

CFA Badge

 

He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100