Emerging Global Advisors, the ETF firm focused only on
developing markets, today will launch a core emerging markets
equities fund that will span the capitalization spectrum and
likely include small and midsize companies, addressing its concern
about the shortcomings of some broad emerging market ETFs.
The EGShares Emerging Markets Core ETF (NYSEArca:EMCR), which
will come with a net expense ratio after fee waivers of 0.70
percent, will be based on the S&P Emerging Markets Core Index,
which starts by organizing holdings on an equal-weighted basis.
Equal-weighted indexes tend to tilt portfolios toward smaller-cap
firms, since larger firms have a smaller place compared with
traditional cap-weighted indexes. However, the index imposes a
15 percent country cap, which is a modification from strict
Also, of crucial importance in the prospectus is a disclosure
that the S&P index includes securities in Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Hungary, India, Indonesia,
Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia,
South Africa, Thailand and Turkey.
Conspicuously missing from the list are Korea and Taiwan.
Those omissions set EMCR's portfolio apart from existing broad
emerging markets funds. Indeed, Emerging Global doesn't think
either South Korea or Taiwan are developing countries anymore,
putting the ETF firm in the middle of a debate on emerging markets
investing involving some of the biggest and most prestigious
Two funds that differ on this issue from EMCR are the current
the Vanguard MSCI Emerging Markets ETF (NYSEArca:VWO) and
the Schwab Emerging Markets Equity ETF (NYSEArca:SCHE). VWO
is based on an MSCI index and holds both Korean and Taiwanese
companies, while Schwab's SCHE is based on a FTSE index that
eschews Korean companies but includes an allocation to Taiwan.
Emerging Global said in a white paper earlier this year
that it had a problem with the large-cap tilt of funds that use the
MSCI index, such as the $57 billion Vanguard MSCI Emerging Markets
ETF (NYSEArca:VWO), saying it exposes investors more to big
multinational companies whose success is tied to the global economy
rather than to local economies where the true growth stories can be
Interestingly, Vanguard recently said it is dropping VWO's
MSCI index in favor of the FTSE index on which Schwab's SCHE is
based, creating a major stir and taking sides with Emerging
Global's position on the issue of the place relatively wealthy
countries such as Korea should have in developing markets
Overall, the S&P Emerging Markets Core Index can include up
to 116 leading companies that S&P Dow Jones Indexes determines
to be representative of all industries in emerging market
The New York-based ETF firm intends to replicate the index as
closely as possible using American depositary receipts, global
depositary receipts or ordinary local shares. However, when it's
not possible or easy to fully implement a replication strategy,
EMCR may use a "representative sampling" strategy that would allow
it to track the index holding fewer component securities. Such
sampling could cause the fund to track the index less tightly.
Emerging Global also has two other core emerging markets funds
that it put into the regulatory pipeline at the same time as EMCR.
- EGShares Emerging Markets Core Dividend ETF, which will have
a net expense ratio of 0.70 percent
- EGShares Emerging Markets Core Balanced ETF, which will have
a net expense ratio of 0.60 percent
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