ECON Columbia Research Enhanced Emerging Economies ETF

Emerging Global, the only ETF company that exclusively focuses on emerging market ETFs, has announced the latest expansion in its lineup with two more funds. The brand new products both offer targeted exposure to often overlooked emerging market segments, potentially giving investors novel ways to diversify the sections of their portfolios that are exposed to developing nations.

Furthermore, both of the funds continue EGShares’ trend of moving away from the MSCI Emerging Markets Index and towards other, arguably more balanced benchmarks. That is because the MSCI index has a heavy focus on quasi-developed nations like South Korea and Taiwan which some no long classify as emerging markets (read Get True Emerging Market Exposure with These Three ETFs).

Additionally,  funds tracking the MSCI benchmark—such as EEM and VWO—account for the vast majority of investor assets in the emerging market ETF world, two thirds of the total AUM by EGShares’ count. This suggests that pretty much all investors obtain their exposure to the segment via one of these two funds, implying a heavy concentration in a few sectors and nations.

Generally speaking, this results in extremely heavy BRIC exposure with these four nations making up just over 40% of the MSCI Emerging Markets index. This also leads to a portfolio that has high levels of assets in a handful of sectors with financials, energy, and materials accounting for roughly half of the total index (see Three Overlooked Emerging Market ETFs).

Thanks to these concentration trends, EGShares looks to give investors new options in order to diversify their current emerging market lineups or provide completely new ways to target the space on their own. The company does this by targeting each of the issues described in the previous paragraph and providing investors with a new way to get around this problem.

This is done with the firm’s brand new Beyond BRICs ETF (BBRC) in order to cycle away from Brazil, Russia, India, and China, while the Emerging Markets Domestic Demand ETF (EMDD), looks to give a new option to gain targeted exposure to consumer segments which are often overlooked in emerging market funds like VWO and EEM.

Either one of these products could provide investors with decent exposure across regions to a host of emerging market stocks. Meanwhile, with the strategic nature of the new funds, they could see decent inflows and could be worth a closer look by emerging market-focused investors. For these reasons, we have highlighted some of the key details from the new launches below:  

EGShares Beyond BRICs ETF (BBRC) - This fund looks to provide exposure to often overlooked and less developed emerging market nations throughout the world. This means that the fund excludes the four BRIC nations and instead focuses in on 15 other markets from four different continents (read Five Emerging Market Infrastructure ETFs for the Coming Boom).

These markets include; Chile, Colombia, Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Morocco, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. In total, the benchmark, the Indxx Beyond BRICs Index, looks to hold 50 stocks in total and uses a free-float market cap weighted system.

In total, South Africa barely edges out Mexico for the top spot from a country perspective, 18.7% to 18.5%. Beyond these, Malaysia, Thailand, and Indonesia round out the top five and all make up more than 12% of assets as well (see more in the Zacks ETF Center).

With this focus, BBRC’s index has a trailing P/E of 17.5 while it yields out a pretty solid 3.25% on an annual basis. This solid payout should help to defray the somewhat steep cost of the fund as the product will charge investors 85 basis points a year in fees.

EGShares Emerging Markets Domestic Demand ETF (EMDD) - This new product looks to track the Indxx emerging Markets Domestic Demand Index, which is a free-float cap weighted benchmark that consists of about 50 stocks in 11 different nations.

The focus of this fund looks to peel investors away from the usual segments of energy and financials and towards ones that are more exposed to domestic growth trends. EG believes that these include both of the consumer sectors, telecoms, utilities, and health care, giving the fund a very different exposure profile than many of its peers in the space (read Top Three Emerging Market Dividend ETFs for Income and Growth).

In fact, close to 30% of the portfolio is in each of the following three segments: consumer staples, consumer discretionary, and telecom. Meanwhile, Mexico receives the biggest allocation from a country perspective, while China, India, South Africa, and Brazil all receive double digit allocations as well.

The fund will charge investors 85 basis points a year in fees while the trailing P/E is at a reasonable 19.2. Investors should also note that the yield for the underlying index comes in at 2.6% a year, suggesting it could be a decent source of income as well.

“EGShares BBRC and EMDD ETFs represent alternatives to those broad benchmarks which typically reflect the most mature countries and sectors in emerging markets.” said Marten Hoekstra, CEO of Emerging Global Advisors in a press release. “To attempt to meet the need for exposure to less mature countries, we created the EGShares Beyond BRICs ETF. To attempt to meet the need for exposures to less mature sectors, we created the EGShares Domestic Demand ETF.”

Hoekstra continued, “BBRC and EMDD are components of what we believe is a modernized EM core portfolio and are the latest outcome of our mission to provide investors with the tools they need to get the exposures they want in emerging markets”.

As previously touched-upon, the emerging market ETF world is an extremely competitive one but it is also very top heavy. Currently, there are about five dozen unleveraged emerging market ETFs with over $111 billion in total AUM (see Frontier Market ETF Investing 101).

Clearly, there is a great demand for emerging market products, although the vast majority of assets tend to flow into broad products tracking popular indexes. However, it should be noted that EGShares has seen a great deal of interest in one of its similar funds the Emerging Markets Consumer Titans ETF (ECON).

This product currently has over $400 million in assets and sees volumes that exceed 124,000 shares on a daily basis. If EGShares is able to replicate even a fraction of this success with BBRC and EMDD, there could be two more quality options for investors in the developing market ETF world, especially for those looking for new choices that do not have some of the same drawbacks that VWO and EEM possess.

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Follow @Eric Dutram on Twitter

Eric is long VWO.

 
(BBRC): ETF Research Reports
 
EMERG-GS DJ EMC (ECON): ETF Research Reports
 
ISHARS-EMG MKT (EEM): ETF Research Reports
 
(EMDD): ETF Research Reports
 
VIPERS-M EM MKT (VWO): ETF Research Reports
 
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