(Updated to add comments from SSgA official.)
State Street Global Advisors today launched a small-cap version
of its broader SPDR S'P Emerging Asia Pacific ETF (NYSEArca:GMFS),
a first-to-market fund targeting a region that many analysts see as
having the greatest potential for growth in the coming years.
The new SPDR S'P Small Cap Emerging Asia Pacific ETF
(NYSEArca:GMFS) comes with an annual expense ratio of 0.65 percent,
compared with 0.59 percent for the broader and larger-cap GMF.
Kevin Quigg, SSgAâs global head of strategy and consulting for
SPDR ETFs, said that the new small-cap Asia fund speaks to investor
demand for exposure to the growing Asian middle class in countries
such as China. He said GMFS offers an alternative to large-cap
emerging market funds, which he says primarily depend on the health
of the overall world economy.
âTen years ago this was a small part of the world economy,â
said Quigg, noting that at that time emerging market countries made
up 5 percent of the worldâs total stock market value, whereas now
that number is 13 percent. Another statistic that bodes well for
GMFS is the future growth rate for Asia, which is projected to be
five times that of advanced countries, Quigg said.
The new fund is one of four small-cap emerging market ETFs that
SSgA registered with the Securities and Exchange Commission last
summer, and reflects the increasingly granular way fund companies
are marketing developing-world investments. As Quigg said, emerging
market small-cap funds are seen as a way to gain access the
consumption of rising middle classes.
The Small Cap Emerging Asia fund will use sampling strategy to
track the S'P Asia Pacific Emerging under USD 2 Billion Index.
Countries are eligible for inclusion in the index if they are
classified as developing or as emerging. Country classification is
renewed annually, according to the fund prospectus.
Each stock in the index is capped at a maximum of 25 percent of
the index weight, and the top five stocks are capped at a maximum
of 50 percent of the index weight. Countries covered in the index
have historically included, among other countries, China, India,
Indonesia, Malaysia, the Philippines, Taiwan and Thailand. As of
MayÂ 31, 2011, the index had 1,321 securities.
The chief risks of investing in emerging markets in the Pacific
region include high inflation rates, undeveloped financial services
and heavy reliance on international trade, according to the
However, Quigg said that to a certain extent the new small-cap
Asia fund is insulated from world events.
âIt broadens your overall exposure,â he said, âIt gives
you enhanced diversification as well as absolute return for the
asset class, and, because the valuations are very strong, it is
less correlated to your global story and more of a local
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