State Street Launches Two International ETFs - ETF News And Commentary
March 04 2012 - 7:59AM
Zacks
With over $2 trillion in assets under management, State Street
Global Advisors, the investment management arm of State
Street Corporation (STT), best known for providing
investment strategies and integrated solutions to clients
worldwide, recently added two more products to its international
ETF lineup by launching the SPDR MSCI EM 50 ETF
(EMFT), and the SPDR MSCI ACWI IMI ETF
(ACIM). EMFT targets a subset of the two largest funds in
the emerging markets space, while ACIM blends developed and
emerging stocks into a single product.
The new funds also look to help SSGA round out its offering in
the international and emerging market space, where the company has
less than 10 funds in total. Hopefully, from the firm’s
perspective, these new funds can see similar inflows as what the
company has seen in its popular gold, sector, and broad market U.S.
funds. As a result, the inclusion of these ETFs can be viewed as a
strategic move by State Street to gain market share and widen its
investor base in this highly vibrant and potentially lucrative area
(also read iShares Launches Three New International ETFs).
While the products may be useful additions to State Street as
the company looks to catch up to iShares in the international
space, the funds could be of interest to investors as well. Below,
we highlight some of the key points that investors need to take
away from this launch as well as how these ETFs may fit into a
portfolio, and how they compare to more established funds already
on the market:
Both the new funds aim to provide investors international
exposure including higher risk higher reward developing markets.
The internationally diversified funds seek to do this by investing
across a variety of companies from a wide spectrum of market
capitalization levels and sectors. The SPDR MSCI ACWI IMI
ETF (ACIM) seeks to track the performance of the MSCI All
Country World Investable Market Index. This benchmark is a free
float adjusted, market capitalization weighted index comprising up
to 98 percent of the developed and emerging market securities.
Recently, the underlying index was comprised of 8,920 publicly
traded securities across 45 countries (see Ten Best New ETFs Of
2011).
Meanwhile, the SPDR MSCI EM 50 ETF (EMFT) seeks
to track the performance of the MSCI EM 50 Index. The index
underlying this product is a free float-adjusted market
capitalization-weighted index that includes 50 of the largest MSCI
Emerging Markets Index constituents. Investors should also note
that the universe consists of locally listed securities, except in
the case of Brazil, India, Mexico, and Russia, where depositary
receipts are used instead.
Holdings of ACIM and EMFT
In terms of holdings, ACIM invests 46% of its
net assets in US based companies. This results in higher
concentration risk as it puts a plurality of its assets within the
boundaries of the world’s largest economy. However, this can also
help to promote liquidity, a fact that is best indicated by looking
at some of the top ten holdings including; Apple Inc.
(AAPL) 1.35%, Exxon Mobil Corp. (XOM)
1.30%, IBM Corp. (IBM) 0.73% , and Chevron
Corp (CVX) 0.66%, all securities which are widely held and
traded on a daily basis.
As far as sector exposure is concerned, the fund mainly
emphasizes Financials, IT, Capital Goods, and Energy, as these
constitute 19.26%, 12.50%, 11.58%, and 11.18%, respectively, making
it a well diversified fund. Lastly, investors should note that the
product is pretty cheap compared to most in the space, as it
charges investors 25 basis points a year in fees, well below the 43
basis points that is the category average (read Five Cheaper ETFs
You Probably Overlooked).
On the other hand, EMFT offers great
diversification from both a geographic and sector perspective. With
that being said, investors should note that the fund does have a
tilt towards Pacific Rim economies as well as those in the BRIC
bloc. The major country holdings include 18.66% in South Korea,
18.17% in China, 16.80% in Brazil and 11.20% in Russia. From a
sector perspective, it mainly emphasizes Financials 23.32%, Energy
21.88% and IT 19.50%. The expense ratio of this fund is 0.50%
(category average 0.65%) which is also the lowest among the SPDR
emerging market ETFs, but not the lowest in the category
overall.
Competition
While the funds could see some interest from investors, they
look to face stiff competition from entrenched products as well. On
the emerging markets side, EMFT looks to face up against the ultra
popular Vanguard MSCI Emerging Markets ETF (VWO)
and the iShares MSCI Emerging Markets Index
(EEM). Both of these funds target emerging markets as
well, but look to do it more broadly with more individual holdings
(read Three Overlooked Emerging Market ETFs).
ACIM also looks to face a tough road on its path to asset
inflows, thanks to a number of competing products. In addition to a
couple of funds from State Street—CWI and
GWL in particular—Vanguard also has two entrants
in the ex-US world space while iShares has its MSCI ACWI ex-US fund
as well. Nevertheless, ACIM’s focus on only large caps, and the
inclusion of American securities, could help the fund promote
liquidity making this product have tight bid ask spreads when
compared to some peers. If that is the case, the fund could see
lower total costs than many others in space, and much like EMFT,
possibly see inflows despite heavy competition.
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