On Tuesday, ETF traders will be pleased to hear that Emerging Global Advisors' EGShares - Emerging Markets Core exchange-traded fund will begin trading under the ticker symbol EMCR. When it comes to many of the emerging-markets ETFs, such as the SPDR S&P Emerging Markets ETF (NYSEARCA:GMM), investors will notice that the energy and natural resource sectors come into play whereas the technology and retail sectors are often neglected.
According to an article written by Brenden Curry of Barron's, "The portfolio consists of 116 equal-weighted emerging markets stocks of $1 billion or higher market capitalization, according to the SEC registration statement. The analysts at S&P Dow Jones Indexes have determined that these 116 are "representative of all industries in emerging markets countries." The good news about these numbers is the fact that potential investors now have an ETF that seems to be equally focused on all sectors throughout, rather than being heavily weighted in just a handful of sectors as is the case with such names as Vanguard's Emerging Markets ETF (NYSEARCA:VWO) and Market Vectors Egypt Index ETF (NYSEARCA:EGPT).
One of the most important things investors need to understand when it comes to the emerging markets-based ETFs is something called portfolio differentiation. For example, Vanguard's Emerging Markets ETF consists of names such as Samsung (OTC:SSNLF), Vale SA (NYSE:VALE) and China Mobile Limited (NYSE:CHL) whereas EMCR will consist of smaller to mid-cap stocks that are intended to enhance the growth of the fund. The addition of both small-cap and mid-cap stocks implies an aggressive growth strategy especially since ETFs such as VWO and EGPT tend to consist of elements (either heavily focused in a specific sector or limited by a regional reach) that hinder the investment options these funds have to consider.
Should income-driven investors consider a position in EMCR as the company begins to trade its shares? In my opinion, the angle in the case of EMCR should be one of growth more so than income. The fact is ETFs tend to have fairly low yields due largely in part to the fact many of them consist of both growth and income stocks. In the case of both VWO and EGPT, we'll notice that the ETFs have trailing 12-month yields of 3.42% and 1.85% respectively. Income-driven investors should realize that although both yields are fairly admirable, the YTD returns on both funds are quite impressive. Vanguard's Emerging Markets ETF has returned 10.55% for the year and the Market Vectors Egypt Index ETF has returned 64.80% on the year.
For those looking to establish a position in EMCR, potential investors should do so with a small to moderate position and add to that position if and when performance estimates are surpassed. If EMCR can outperform both VWO and EGPT over the course of the next 12-24 months, potential investors should then add additional shares to their portfolios.