In addition to dividend-focused products, Global X has been
pushing heavily into the emerging market space. These quickly
growing countries have been overlooked by many investors, but
thanks to some more favorable trading lately, could be making a
Global X has largely gone off the beaten path in its quest to offer
emerging market options to investors, focusing on regions that
haven't been available to many U.S. investors. Its latest products
in this vein targeted countries like
, while the newest addition to their lineup-the
Next Emerging & Frontier ETF: EMFM
-seeks to continue the trend.
EMFM in Focus
This new fund from Global X looks to follow the Solactive Next
Emerging & Frontier Index, giving investors exposure to a
variety of companies from around the developing world. The product
looks to charge investors 58 basis points a year in fees, making it
a bit cheaper than some of the other frontier market funds out
Why Frontier Markets are Still Attractive
The appeal of this fund looks to be its focus on smaller developing
markets that have been largely overlooked by investors, and still
absent from many portfolios. In fact, the fund looks to exclude
securities from the BRIC nations, in addition to ones from South
Korea and Taiwan as well.
A focus that goes to other nations beyond these six giants could
produce higher growth rates, and tap into the next round of
emerging market all-stars. Plus, since many nations are absent-or
are in small quantities-in other emerging market funds, there are
also diversification benefits from this approach.
Portfolio in Focus
The fund looks to hold about 200 securities in total, though no
security looks to account for more than 2% of the total, though
there is a market cap weighting mechanism. Asian stocks dominate at
roughly 37.6% of assets, while Latin America (23.3%), Eastern
Europe (19.4%), and Africa (13.7%), round out the rest and leave
just a little bit for Middle East stocks at 6% of the fund.
In terms of sectors, financials take the top spot at 19.9% of
assets, followed by materials (17.3%) and telecoms (13.5%). Energy
and industrials also receive double digit weights, while tech and
health care aren't well represented at just 3% combined (read
Frontier Markets: A Better Choice for ETF
Investors should also note that the index can include ADRs and
GDRs, in addition to common stocks. Furthermore, companies must
either be based in these emerging nations, or derive at least 50%
of their revenues from these markets.
"While emerging and frontier markets may provide ample opportunity
for growth, many individual countries and regions are concentrated
in particular sectors and have only a handful of liquid names,"
said Justin Young, Head of Capital Markets at Global X in a press
release. "The Next Emerging & Frontier ETF was designed
specifically to address these challenges by providing broad
exposure to 35 countries and utilizing caps and liquidity
thresholds in an effort to ensure diversified, high quality
How does it fit in a portfolio?
This ETF seems like a logical choice for investors who want broad
emerging market exposure, but are looking to avoid the big BRIC
nations, and the nearly developed South Korean and Taiwanese
markets. This strategy could result in higher growth levels, while
its low expense ratio compared to its peers makes it a cheap choice
as well (read
Buy These Emerging Market ETFs on the Upswing
However, the fund does have a very interesting mix of countries
that do not really have much of a theme. Everything from Papua New
Guinea and Qatar to Indonesia and Peru are included, so there is
pretty diverse mix of nations in the fund.
The space is also pretty risky, and some might feel that the lack
of exposure to sectors that benefit from demographic trends-like
consumer and health care-are lacking.
ETF Competition and Bottom Line
There are literally dozens of other emerging market ETFs trading,
so there is no shortage of other options for investors. However,
there are a few frontier market ETFs currently trading, and these
look to be the true competitors for the new Global X product (see
all the Emerging Market ETFs here
The two products in this space are the
iShares MSCI Frontier 100 Index Fund (
Guggenheim Frontier Markets ETF (
. The two combine to possess about $450 million in assets under
management, and thus are relatively popular with investors (though
the lion's share is in FM).
This could create a bit of a roadblock for EMFM, but it is
important to note that the Global X fund handily beats both on the
expense front, so it could attract cost conscious investors. Still,
the other two are 'pure' frontier market funds, so one could argue
that they are different from the Global X fund.
It will be interesting to see if investors agree with this
assessment, or if they view this as a better way to gain exposure
to the emerging market space. This could be especially true for
those who are sick of the somewhat overbearing influence of the six
mega nations that tend to dominate most developing world
investments, though only time will tell if EMFM is their preferred
way to accomplish this task.
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GLBL-X CTL A&M (AZIA): ETF Research Reports
ISHRS-MSCI F100 (FM): ETF Research Reports
GUGG-FRONTR MKT (FRN): ETF Research Reports
GLBL-X NIGERIA (NGE): ETF Research Reports
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