The long wait is over, as the Vanguard MSCI Emerging MSCI Emerging Markets ETF finally eclipsed the iShares MSCI Emerging Markets Index Fund as the biggest U.S.-listed emerging markets ETF.

On Tuesday, Jan. 18, investors pulled $323.0 million out of EEM while adding about $530,000 to VWO, according to data compiled by IndexUniverse.com. Vanguard’s fund ended the day with $46.47 billion in assets compared with $46.36 billion for EEM. Vanguard launched VWO in March of 2005, almost two years after iShares rolled out EEM.

Yesterday’s flows were the latest fold to a storyline that came into sharper focus in the past year as VWO, the younger of the two funds, steadily bridged the gap with EEM. Last year, VWO was the single-most-popular U.S.-listed ETF last year, hauling in $19.34 billion in 2010, compared with $2.28 billion for EEM. VWO was a key reason Vanguard hauled in more assets last year than any other U.S. ETF firm.

“There’s no popping of champagne corks around here; it’s just another day at the office,” Joel Dickson, a principal at Vanguard’s investor strategy group, said in a telephone interview. “We’re certainly gratified that investors seem to differentiate among products in a way that makes sense for them in terms of lower costs and better tracking.”

Indeed, VWO’s allure is partly related to its expense ratio of 0.27 percent, which remains quite a bit lower than EEM’s, even after iShares lowered it on Jan. 1 to 0.69 percent from 0.72 previously. The other piece of VWO’s attractiveness may well be its returns, which are sometimes better than EEM’s, even though both ETFs use the MSCI Emerging Markets Index.

Through Jan. 14, the index had returned almost 20 percent since Dec. 31, 2009, compared with about 18 percent for VWO and 15.5 percent for EEM. VWO uses a replication strategy, meaning it seeks to own as many of the underlying stocks in the index as possible, whereas EEM uses a sampling strategy designed to deliver the index’s returns without owning all the securities in it. VWO’s returns aren’t always better than EEM’s, but they do tend to track the index more closely.

Officials at San Francisco-based iShares weren't immediately available to comment.

Alone At The Top

The Vanguard and iShares emerging markets funds are pretty much alone at the top of the heap in terms of assets, if not expenses.

The SPDR S&P Emerging Markets ETF (NYSEArca: GMM), for example, had $237.8 million in assets as of Tuesday’s close. GMM, which State Street Global Advisors launched in March 2007, has a gross expense ratio of 0.59 percent.

The only competitor that beats VWO on price is the Schwab Emerging Markets Equity ETF (NYSEArca: SCHE), which has an expense ratio of 0.25 percent. The Schwab fund, which came to market in January 2010, had $312.9 million in assets as of yesterday, according to data compiled by IndexUniverse.com.

Wheaton, Ill.-based PowerShares came to market in September 2007 with an emerging markets ETF using a fundamental index from Rob Arnott’s firm, Research Affiliates. The PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEArca: PXH) has an expense ratio of 0.85 percent and is now at $543.5 million.

EEM Still Favored By Traders

One area where EEM still dominates over VWO and other emerging market ETFs is in turnover, a clear sign that its first-to-market status helped it become—and remain—a darling among traders. Importantly, EEM’s higher expense ratio is much less of an issue for traders who are using the ETF on a short-term basis.

Last year, EEM had turnover of $762.66 billion, compared with $164.54 billion for VWO, according to data compiled by IndexUniverse.com. Hedge funds and institutions often use the most liquid ETFs for hedging out other positions on their books.

That doesn’t mean VWO’s use as a trading vehicle isn’t growing, but Dickson said that most of the activity Valley Forge, Pa.-based Vanguard sees in VWO is in creations. That suggests the firm is still attracting buy-and-hold investors that have been its bread and butter since it was created by John Bogle in 1975.

Dickson stressed that while VWO trades tens of millions of shares a day on average, the creation-redemption mechanism that is at the heart of every ETF insulates buy-and-hold investors from all the comings and goings of trading.

“It’s the traders that may be at some peril, if you will, as to whether they’re going to get the type of returns from the type of trading activity they’re doing—that’s what Jack Bogle talks about,” Dickson said. “But even if there is a ton of turnover, it’s not affecting our day-to-day portfolio management and execution process.”