Emerging Global, the emerging markets focused ETF, has announced the launch of EGShares Beyond BRICs ETF (BBRC), a fund that seeks exposure to an often overlooked emerging market segment, giving investors an opportunity to diversify their portfolio.
EGshares is one of the first companies to move away from the MSCI Emerging markets Index to other more diversified and balanced benchmarks since the MSCI Index focuses heavily on quasi developed nations like Taiwan and South Korea.
Funds tracking the MSCI benchmark generally have extremely heavy exposure in the BRIC nations; stocks from Brazil, Russia, India and China make up for about 40 percent of the MSCI Emerging Markets Index, implying significant concentration risk in a handful sectors and nations.
The EGShares Beyond BRICs ETF gives investors an opportunity to get away from the BRIC nations to a host of new emerging markets. BBRC focuses on 15 other less developed emerging markets in four continents that include Chile, Colombia, Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Morocco, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The fund replicates the Indxx Beyond BRICs Index which uses a free-float market-cap weighted methodology and holds 50 stocks.
The primary geographies include South Africa, Mexico, Malaysia, Thailand and Indonesia with South Africa and Mexico occupying the top two slots with 18.7 and 18.5 percent asset allocation, respectively. Malaysia, Thailand and Indonesia comes next, making up for more than 12 percent allocations each. The Financial sector gets the top billing at 34.2 percent in the index followed by Telecommunication Services (18.7 percent), Oil and Gas (11.1 percent), Consumer Staples (9.7 percent), consumer discretionary (8.2 percent), Industrials (5 percent) and Utilities (3.7 percent).
The fund may invest small and mid cap companies with market capitalizations of not less than $100 million using ADRs, GDRs or ordinary local shares.
In circumstances where it may not be possible to replicate the underlying Indxx Beyond BRICs Index, the fund may utilize the ‘representative sampling’ technique where the fund would hold a significant number of component securities of the underlying benchmark, but may not track the entire index accurately. The fund can also hold 25 percent or more of its total assets (“Concentration of Investments”) in a particular industry or group of industries to the extent the underlying index is concentrated.
Since BBRC is a non-diversified fund, it can invest a greater percentage of total assets than a diversified fund in any one issuer. The fund has an annual expense ratio of 85 basis points.
At this time, assets and trading volume are very skinny and not yet acceptable. However, the concept of diversifying as described is intriguing, and I will revisit the hopefully improved stats of this ETF in a few months.
Disclosure: No holdings