ETFs Battle Over Foreign Exposure

With so many ETFs consisting of similar holdings and exposure, many times judging one against another becomes a case of each one's idea of building a better mousetrap.

Recently, my colleague Jen Ryan reported that Vanguard is coming out with an ETF that will be similar to iShares MSCI EAFE (EFA Quote - Cramer on EFA - Stock Picks), but it will include Canada.

A short time ago, StateStreet very quietly beat them to the punch with the SPDR MSCI ACWI (All Country World Index) ex-U.S. ETF (CWI Quote - Cramer on CWI - Stock Picks), which also owns Canada but has more emerging-market exposure than EFA, close to 13% for CWI vs. less than 3% for EFA.

The country weights for the largest countries between the two funds are similar, as are some of the top holdings and sector weights. For example, each fund has a 29% weight in the financial sector. The two also have very similar weightings in the consumer discretionary and industrial sectors. Japan and the U.K. are the two largest countries, but in CWI, the two comprise 18%, compared with 23% in EFA. The two funds also share nine out of their respective top 10s in common at similar weightings.

Considering this, the question then becomes, what are the differences? One would be the several structural differences that could affect performance over longer periods of time. The first is mentioned above. CWI has much more emerging-market exposure, but it does tilt heavily to Asia. Brazil weighs in at 1.36% and Russia at 1.44%.

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