It took a while, but US investors finally have access to Australian and Canadian small cap stocks via ETFs. IQ Small Cap Australia ETF (KROO) and IQ Small Cap Canada ETF (CNDA) began trading March 23, 2010. The new ETFs came from what some might consider an unlikely source – IndexIQ, the firm that arrived on the scene a year ago with the industry’s first hedge fund replication ETF.
My statement that it “took a while” is based on the fact that it was March 12, 1996 when iShares MSCI Australia (EWA) and iShares MSCI Canada (EWC) became the 3rd and 4th ETFs listed in the US. Known as WEBS (World Equity Benchmark Shares) instead of iShares at the time, they were just two of the 17 single-country ETFs launched that day. These earlier products focused on the largest stocks within each country. More than 14 years and 1,000+ intervening ETF/ETN launches later, the first Australia and Canada small cap ETFs arrived.
IndexIQ defines the small cap segment of each country as companies in the bottom 15% of market capitalization. To be included, a stock must also have a minimum market capitalization of $150 million and a minimum average daily trading volume of $1 million. The maximum weighting of any stock will be 10% at quarterly rebalancing. Each fund will hold 100 stocks. Additional information on methodology and construction can be found in the IndexIQ Small Cap Methodology (pdf) document.
The top holdings of KROO include Bendigo & Adelaide Bank Ltd. 3.4%, Aquarius Platinum Ltd. 2.9%, Downer EDI Ltd. 2.6%, CSR Ltd. 2.5%, and David Jones Ltd. 2.4%. There appears to be a small degree of overlap between these stocks and some of the smaller holdings in iShares MSCI Australia (EWA) (EWA overview).
Top sectors include Materials 26.9%, Consumer Discretionary 24.6%, Industrials 10.7%, Financials 10.2%, Consumer Staples10.0%, and Health Care 7.7%. Additional information can be found in the KROO fact sheet (pdf).
The top holdings of CNDA include Red Back Mining Inc.3.9%, Viterra Inc. 3.0%, Pacific Rubiales Energy Corp. 2.5%, Open Text Corp. 2.4%, and Inmet Mining Corp 2.4%. There appears to be a small degree of overlap between these stocks and some of the smallest of the 100 holdings in iShares MSCI Canada (EWC) (EWC overview).
Investors need to be aware of CNDA’s large sector concentrations: Materials 50.0%, Energy 18.8%, Financials 6.5%, Industrials 5.7%, and Consumer Staples 5.3%. Additional information can be found in the CNDA fact sheet (pdf).
I suspect that investor demand will be strong for these products and IndexIQ will have a couple of winners on their hands. It appears that they are planning on success and have already defined Taiwan Small Cap and South Korea Small Cap indexes.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.