Why is $EEM All All About The Fast Money?

Bloomberg makes me think hard and long about investments. Kind of a challenge to keep up with, but always a pleasure to work with. We do a lot of work in the Emerging Markets space

Bloomberg makes me think hard and long about investments. Kind of a challenge to keep up with, but always a pleasure to work with. We do a lot of work in the Emerging Markets space – kind of have to with all the china headlines. It is for these reasons and because we recently highlighted iShares $EEM ETF in our latest monthly piece https://blog.etfthinktank.com/blog/growth-metrics that I read closely the piece written by Morgan Barna and Eric Balchunas https://blinks.bloomberg.com/news/stories/PYABF36JTSEZ

ETFs Are About Access

The ETF market, now at about $4 Trillion in AUM, has grown in part as a solution that provides low cost, tax efficient and transparent access to diversified investment themes. Meaning – some like it hot, some like it cheap and some are seeking differentiation with factor based strategies or thematic sleeve. However, in reading the Bloomberg article that is attached I couldn’t help but wonder why the institutional percentage of ownership is so high on an ETF that is so relatively expensive.

The answer probably lies with transient nature of the ownership – shorts are about 20% of the AUM and open interest in the options market may also be having a transient influence. What does this mean? Bridgewater was or is a substantial owner. I guess when you are a 2 and 20% crazy successful hedge fund you don’t have to care about saving 53 Bps – oops wait they own both EEM and IEMG as of the latest 13F (6/30/19).

Reading the tea leaves the temporary nature of trading flows can be challenging unless you know the purpose and commitment of the portfolio that is buying, trading or shorting the ETF. However, why institutional flows gravitate to this ETF with a 67 Bps may have something to do with the attraction. Arguably there is plenty of liquidity in the two larger ETFs which are both twice the size of EEM in terms of AUM, aka VWO and IEMG. I just wonder if the flows are mostly a function of options and short activity which ultimately will go away and lead to further shrinkage in AUM for EEM?

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