By The ETF Professor
MSCI (MSCI) the provider of some of the most widely used international indices for ETFs, has unveiled its own take on the "Beyond BRICs" theme with the launch of the MSCI Beyond BRIC Index.
As the name implies, the MSCI Beyond BRIC Index excludes Brazil, Russia India and China, countries that currently combine for about 40 percent of the MSCI Emerging Markets Index. The MSCI Emerging Markets Index is the underlying index for the iShares MSCI Emerging Markets ETF (EEM), which currently allocates more than 41 percent of its weight to the BRIC nations.
The MSCI Beyond BRIC Index "is designed to provide a broad measure of the performance of emerging market equities outside of the BRIC markets - Brazil, Russia, India and China. In addition, to provide greater country diversification, the weight of each single country is capped on a quarterly basis at 15%," according to MSCI.
"The BRIC countries have been recognized over the past few years as key drivers of economic growth within the Emerging Markets and many institutional investors already have exposure to those countries within their portfolios," said Deborah Yang, Managing Director and Head of the MSCI Index Business in Europe, the Middle East, Africa and India, in a statement. "We have launched the MSCI EM Beyond BRIC Index in response to client demand and believe it offers a new way to track and evaluate the Emerging Markets opportunity set for those wishing to invest in countries outside the BRIC region."
South Africa, Taiwan and South Korea are the heavyweights in the MSCI Beyond BRIC Index, combining for about 46 percent of the index's weight. Countries such as Mexico, Malaysia and Indonesia are more heavily represented than they are in the emerging markets index. That trio combines for about 28 percent of the MSCI Beyond BRICs Index, but Mexico and Malaysia are barely nine percent of EEM's weight.
"The MSCI EM Beyond BRIC Index has outperformed the MSCI Emerging Markets Index since 1999 (12.0% gross annualized return in USD vs 11.1%). Between 1999 and 2007, the MSCI Emerging Markets Index outperformed the MSCI EM Beyond BRIC Index by 2.1 percentage points (20.1% vs 18%). Since 2007, the MSCI EM Beyond BRIC Index has had a positive annualized performance of 2.83% while the MSCI Emerging Markets Index had a negative performance of 2.1%," according to MSCI.
Top-10 holdings in the MSCI Beyond BRIC index include Samsung, Taiwan Semiconductor (TSM) and America Movil (AMX). Financial services is the largest sector weight at almost 26.1 percent while technology and materials combine for nearly 26 percent.
As of August 30, the Beyond BRIC index traded with a slightly lower dividend yield and higher valuations than what was seen on the emerging markets index. However, the MSCI Beyond BRIC Index has a three-year standard deviation that is nearly 200 basis points lower than the emerging markets index, according to MSCI data.
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