IndexIQ, the firm known for pioneering the hedge fund replication ETF space, recently made an SEC filing detailing plans for close to a dozen new funds targeting international equity markets. The filing was light on details such as ticker symbols or expense ratios, but highlighted the investment objectives for the innovative funds:
- IQ Mexico Small Cap ETF: Linked to the IQ Mexico Small Cap Index.
- IQ Asian Tigers ETF: Linked to the IQ Asian Tigers Index, which consists of stocks listed on an exchange in Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.
- IQ Asian Tigers Consumer ETF: Linked to the IQ Asian Tigers Consumer Index, which consists of stocks in the consumer sector in the Asian Tiger economies.
- IQ Asian Tigers Small Cap ETF: Linked to the IQ Asian Tigers Small Cap Index.
- IQ Asia Pacific ex-Japan Small Cap ETF: Linked to an index consisting of small cap stocks in Australia, Hong Kong, New Zealand and Singapore.
- IQ Australia Mid Cap ETF: Linked to the IQ Australia Mid Cap Index.
- IQ Canada Mid Cap ETF: Linked to the IQ Canada Mid Cap Index.
- IQ Japan Mid Cap ETF: Linked to the IQ Japan Mid Cap Index.
- IQ Emerging Markets Mid Cap ETF: Linked to the IQ Emerging Markets Mid Cap Index.
- IQ Global Precious Metals Small Cap ETF: Linked to the IQ Global Precious Metals Small Cap Index, which consists of global small cap companies that are engaged primarily in the gold and other precious metals mining industries.
- IQ U.S. Real Estate Small Cap ETF: Linked to an index that consists of small cap REITs.
Many of the proposed ETFs would be first-to-market products, while others would compete with funds already on the market and already in the pipeline of other issuers. Van Eck, for example, already offers a Junior Gold Miners ETF (GDXJ) while Global X offers a Gold Explorers ETF (GLDX). There are already 17 ETFs in the Asia Pacific Equities ETFdb Category, though none that focus specifically on the “Asian Tigers” or the consumer sector in that region. There are also seven ETFs in the Japan Equities ETFdb Category, including multiple funds focusing on both large and small cap stocks but none targeting the mid cap sector of the Japanese market.
IndexIQ debuted as a provider of hedge fund replication ETFs, and that product suite includes both the broad-based QAI and more targeted strategies such as merger arbitrage (MNA) and macro (MCRO) funds. The company also offers a number of ETFs focusing on the small cap sector of international markets, including Australia (KROO), Canada (CNDA), Taiwan (TWON) and South Korea (SKOR).
While most international equity ETFs are heavy in large cap stocks, a number of funds have popped up in recent years offering exposure to small cap companies as well. Whereas mega cap stocks tend to be multi-national companies that generate revenue in various countries, small caps are generally more directly impacted by local consumption - and as such may be more of a “pure play” on the local economy. Small cap stocks have outpaced large caps by a wide margin over the last two years; for example, the Brazil Small Cap ETF (BRF) gained about 24% last year while the MSCI Brazil Index Fund (EWZ), which is dominated by mega cap stocks, was up only about 4%.
The IndexIQ small cap ETFs have seen significant inflows in recent months; CNDA now has more than $130 million in assets while KROO has topped $40 million. Options for mid cap international ETFs are fairly limited; the Global X Brazil Mid Cap ETF (BRAZ) and SPDR S&P International Mid Cap ETF (MDD) are among the only choices available to investors in this market segment.
Disclosure: No positions at time of writing.
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