With China continuing to weigh on investor sentiment across the world, Emerging Global Advisors—the NY-based specialist provider of emerging markets exchange-traded funds, recently launched an EM-focused fund that eliminates the China-factor from investing.
With Chinese equity markets bottoming out and the massive economic rebalancing nearly over, most investors expect China to return to growth by the second-half of next year. Nevertheless, China-skeptic investors that still want an exposure in the emerging markets may find the newly launched EGShares EM Core ex-China ETF (XCEM) an attractive option as the fund compensates the absence of China and Hong Kong with a well diversified product mix from other EM countries.
The passively managed XCEM tracks the EGAI Emerging Markets ex-China Index, a market cap-weighted gauge that measures the performance of up to 700 emerging market companies from 20 nations across the world. The underlying index, developed by EGA Indices in house, includes mostly mid– and large-cap companies that are selected based on liquidity and according to free-float market capitalization.
XCEM is geographically well diversified with stocks from Asia, Latin America and Eastern Europe finding representation in the portfolio. The index is tilted toward financial services with 28.07 percent asset allocation, followed by information technology (13.35 percent), industrials (12.98 percent), consumer discretionary (10.82 percent), consumer staples (9.50 percent), energy (8.34 percent), telecom services (6.73 percent), materials (5.25 percent), utilities (2.99 percent) and healthcare (1.97 percent).
The trailing P/E ratio of the index stands at 12.37 while the price/book value ratio comes at 1.31. Individually, Samsung Electronics occupies the top-slot with 4.40 percent exposure followed by Taiwan Semiconductor (3.36 percent) and Itau Unibanco Holding SA Pfd (2.14 percent).
While XCEM eschews China, prospective investors better note the fund still faces significant China exposure. For example, both Taiwan and South Korea, which are large exporters of cars, automobile parts & accessories and electronic goods and microprocessors to China, have a combined weight of 34 percent in the underlying index.
Similarly, Brazil—with an index weight of 13.62 percent, is highly dependent on commodities demand from China; three companies from Brazil, including two commodity producers are included in the underlying index.
The fund has a gross annual expense-ratio of 0.7 percent and a net expense-ratio of 0.35 percent.
Disclosure: No holdings