If you build it, they will come. That could be the sentiment
of ETF issuers when it comes to emerging markets ETFs because
despite slowing growth and rising volatility in the developing
world, issuers keep churning out emerging markets funds.
Emerging Global Advisors, parent company of EGShares, has been
one of the more prolific issuers of emerging markets ETFs. That
is what comprises the firm's entire lineup. A lineup that grew by
one on Tuesday with the debut of the EGShares Emerging Markets
Core ETF (NYSE:
The EGShares Emerging Markets Core ETF tracks the S&P Dow
Jones Emerging Markets Core Index and feature an annual expense
ratio of 0.7 percent, making it one the of the
least expensive EGShares funds
The Emerging Markets Core Underlying Index is an equally
weighted stock market index comprised of 116 leading companies
that S&P Dow Jones Indexes determines to be representative of
all industries in emerging market countries.
Analysts, experts and pundits can debate what "core" emerging
markets exposure exactly means, but it is clear that when it
comes to EMCR, it means no exposure to Taiwan
or South Korea
. Continued classification of those two nations as "emerging" by
some index providers has sparked debate.
EMCR does not leave room for such debate because the ETF
offers exposure to just eight countries and three - China, South
Africa and India - each receive weights of 15 percent. Brazil
lands a weight of 10 percent while Russia chimes in at 8.8
percent. Chile, Malaysia and Mexico each account for 7.5 percent
of the new fund.
Taking a new approach to emerging markets ETFs is nothing new
for EGShares. The firm has previously argued against the efficacy
of broad emerging markets indexes such as the MSCI Emerging
Markets Index. EGShares is also no stranger to
Earlier this year, the firm introduced the EGShares Beyond
BRICs ETF (NYSE:
), which as its name implies, features no weights to Brazil,
Russia, India or China. The EGShares Emerging Markets Domestic
Demand ETF (NYSE:
), which debuted in August along side BBRC, offers investors a
more direct route to playing the promising trend of increased
domestic consumption in various developing nations.
Regarding EMCR, the fund's sector mix has the potential to be
a source of allure among investors that are tired of seeing
financials and materials names dominate emerging markets funds.
Combine financials, materials and energy - the three sectors that
usually loom largest in these type of ETFs - and that is just
29.4 percent of EMCR's weight. Staples and discretionary names
each receive weights north of 17 percent, making those sectors
largest and second-largest, respectively, in the new ETF.
While the energy and materials sectors do not dominate EMCR at
the sector, the fund's top-10 holdings, each of which has a
weight of 1.25 percent, are littered with stocks from the
aforementioned pair of sectors. EMCR's top-10 holdings include
Russian energy giants Gazprom and Lukoil along with Brazil's
state-run oil firm Petrobras (NYSE:
) and Vale (NYSE:
), the world's largest iron ore producer.
Obviously, it is too early to pass judgment on EMCR regarding
performance. Perhaps the largest risks to the ETF getting off to
a good start are continued woes for Chinese equities (though
China ETFs have started to improve recently) and
further declines for the rand
, which could spell trouble for South African equities.
EMCR's potential near-term upside could be driven by the
attractiveness of the Indian, Malaysian and Mexican markets.
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