Emerging Global Advisors, the fund provider known for its
emerging markets strategies, today launched two ETFs that go off
the beaten path and serve up focused access to some of the
developing world's less mature economies as well as the regions'
domestic demand story.
The EGShares Beyond BRICs ETF (NYSEArca:BBRC) tracks the Indxx
Beyond BRICs Index and invests in equities from countries that are
often overlooked by many emerging markets strategies already in the
space such as Chile, Colombia, Czech Republic, Egypt, Hungary,
Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland,
South Africa, Thailand and Turkey.
The EGShares Emerging Markets Domestic Demand ETF
(NYSEArca:EMDD) tracks the Indxx EM Domestic Demand Index and
invests in the five economic sectors EGA sees as those that are
directly linked to domestic demand:consumer discretionary, staples,
telecommunications, utilities and health care. The ETF serves up
exposure to 11 countries and currencies.
By and large, investors are much less discriminating in emerging
markets equities than they are in U.S. equities exposure, EGA said
in material it released on the funds.
Indeed, the majority of ETF assets tied to the space track the
MSCI Emerging Markets Index and other BRIC-heavy broad
benchmarks-only 3 percent of emerging markets ETFs today hone in on
sectors, themes or different size and style methodologies.
What that means is that most of U.S. investors' exposure to
emerging markets is skewed toward the more mature economies in the
space-as much as 70 percent of the MSCI benchmark is allocated to
Brazil, Russia, India and China as well as to South Korea and
Taiwan, two economies EGA's president Bob Holderith recently
suggested should not even be considered emerging anymore.
That dominance of more mature economies in the broad benchmarks
may also increase their correlation to broad developed-world
equities indexes such as the S&P 500, reducing the
diversification impact that an emerging markets allocation can have
on a portfolio.
"The MSCI Emerging Markets Index is a catalogue of what has
happened in emerging markets, a natural consequence of being a
broad market capitalization weighted index," the company said.
Still, the two largest emerging markets ETFs today are linked to
the MSCI benchmark, and they have resonated with investors thus
Vanguard's MSCI Emerging Market ETF (NYSEArca:VWO), in fact, has
been among the most popular ETFs in recent weeks, attracting
inflows that have now pushed its total assets to $65.7 billion. Its
iShares counterpart, the iShares MSCI Emerging Markets Index Fund
(NYSEArca:EEM), boasts $34.5 billion in assets.
Capturing Domestic Demand
In a recent interview with IndexUniverse, Holderith pointed to
booming domestic demand as a key driver in many emerging markets
economies, and one that's often overlooked in broad-based
MSCI's index, for instance, allocates more heavily toward
economic sectors such as financials and energy that fail to capture
the domestic demand themes, he said.
Sectors like consumer staples and discretionary, utilities,
telecommunications and health care-what EGA calls "domestic demand
sectors" and the ones EMDD seeks to capture-represent less than a
third of the total MSCI Emerging Markets Index pie.
Details Of The Funds
BBRC tracks a free-float market-capitalization-weighted index
that currently allocates to 12 countries and currencies.
South Africa is the fund's largest exposure, at 18.7 percent of
the portfolio, while Mexico comes second, with an 18.5 percent
allocation. From a sector perspective, financials snag roughly a
third of the mix, and telecommunication names represent nearly 19
percent. The remainder of the portfolio is split among six other
EMDD comprises 50 holdings and includes 11 countries and
currencies. Mexico is the fund's largest country allocation,
representing nearly 25 percent of the mix.
Consumer staples, discretionary and telecommunication services
each represent anywhere from 26 to 29 percent of the portfolio,
with health care and utilities splitting the rest. The mix is
Both funds cost 0.85 percent in expense ratio.
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