With international markets coming back strong, some are looking
to give foreign markets bigger allocations in their portfolios. In
such a backdrop, Vident - a new ETF sponsor -introduced an
international equity fund on October 29. The new product has been
Vident International Equity Fund
and is trading on the Nasdaq Stock Market.
This new ETF looks to track the Vident International Equity Index
(VIE), which invests its assets in 35 most liquid developed and
emerging countries outside the U.S. The VIE index is an enhanced
benchmark that intends to strike a balance between the traditional
capitalization-based methodology and the active method of risk
The index basically seeks to cash in on global equities with high
potential and attractive valuation (read:
3 Overlooked Emerging Market ETFs
, faster growth, more human productivity and lower fundamental
risks are three criteria VIE looks for while investing in any
country. The index reflects considerable amount of diversification
and follows a half-yearly rebalancing strategy. Moreover, it seeks
to minimize country, currency and company-specific risks that is
safer than the typical capitalization-weighted approaches,
according to Vident.
While the index is governed by Emerging Asia and Developed Europe
with around 27% and 25% focus respectively, markets like those in
the developed Asia/Pacific region, Latin America and emerging
Europe also receive big weights. Japan also has some exposure, but
definitely not more than 17%. Meanwhile, North America accounts for
5% of the portfolio.
From a sector perspective, VIDI is most exposed to Financials
(about 24%) followed by Consumer, Non-Cyclical (12%), Industrials
and Basic Materials (10%). The fund is moderately pricey in the
global equities ETF space. It charges investors a fee of 75 basis
points a year which is slightly higher than the average expense
ratio of the space.
How does it fit in a portfolio?
The new product should entice investors seeking to tap the
long-awaited European recovery as well as the sluggish yet
higher-yielding emerging Asian markets.
After all, although emerging market ETFs have been lagging their
developed counterparts this year and have been among the worst
performers, growth rates of these markets are still higher than
many of the developed nations. Europe too hasemerged from its
crisis and could be considered an investment option at a relatively
low valuation (read:
3 European ETFs Leading the Recovery
Can it Succeed?
While VIDI surely looks to secure one of the highest yields in the
developed (excluding U.S.) and emerging market space, it is by no
means the only product focusing on the global equities space
In fact, VIDI is likely to face stiff competition from a host of
ETFs with the ultra-popular
Vanguard FTSE All World ex-US ETF
) leading the pack. There are also big names like
Total International Stock ETF
MSCI ACWI ex US Index Fund
). All three cost less than VIDI and have at least $1 billion in
assets under management.
The trio delivered at least 9.0% return in the year-to-date frame
(as of November 1, 2013) braving taper concerns, U.S. government
shutdown and structural issues in some major emerging
Meanwhile, exposure-wise all these funds are roughly similar. All
of these, including VIDI, have some coverage on North America in
the single-digit range.
However, the trio has almost half of its allocations to Europe
while VIDI currently has about 37% of its exposure to that
continent. Instead, Emerging Asia has the bigger share of VIDI
Can These Emerging Market ETFs Continue to
VIDI's underlying index - Vident International Equity Index - also
the MSCI ACWI ex-US Index in terms growth indicators. Moreover,
VIDI can be a better tool for risk minimization.
A rebalancing strategy twice a year, an equal-weighted nature and
reliance on fundamentals rather than a blind faith on market caps
can provide VIDI an edge over most of its counterparts. Given the
teeming global equities segment, VIDI may have to sell investors
these unique features to stay competitive in the market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHRS-MSCI ACWX (ACWX): ETF Research Reports
VANGD-FTSE AWLD (VEU): ETF Research Reports
VID-INT EQ FD (VIDI): ETF Research Reports
VANGD-TOT ISIF (VXUS): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report