Emerging Global Advisors is offering an alternative approach to the emerging markets by launching a new exchange traded fund based on an investment index instead of a traditional benchmark emerging market index.
According to a press release, the EGShares Emerging Markets Core ETF (NYSEARCA:EMCR) began trading Tuesday. The ETF tries to reflect the S&P Emerging Markets Core Index, which avoids industry and mature economy concentrations of conventional emerging market benchmarks, like the MSCI Emerging Markets Index and the FTSE Emerging Index. EMCR has a 0.70% expense ratio.
The S&P Emerging Market Core Index is another addition to the growing rules-based, "intelligent" indexing methodology that mimics active management styles. The index focuses on industry groups, does not hold developed economy constituents and follows a modified equal-weight methodology -- the fund's top 10 holdings each make up 1.25% of the overall portfolio.
The ETF's top country allocations include China 15.0%, South Africa 15.0%, India 15.0%, Brazil 10.0%, Russia 8.8%, Chile 7.5%, Malaysia 7.5%, and Mexico 7.5%.
Top sector allocations include consumer staples 17.5%, consumer discretionary 17.4%, financials 16.3%, industrials 10.3%, utilities 7.2%, information technology 6.8%, energy 6.8%, health care 6.3%, materials 6.3%, and telecom services 5.3%.
By comparison, the FTSE Emerging Index's top country allocations include China 16.7%, Brazil 16.1%, Taiwan 13.2%, South Africa 10.6%, and India 9.6%. The MSCI Emerging Markets Index's top country weightings include China 17.4%, South Korea 15.6%, Brazil 12.6%, Taiwan 11.1%, and South Africa 7.9%. South Korea is the key difference between the two indices in terms of country allocations -- FTSE counts South Korea as a "developed market," and as such, does not include the country in its emerging markets index. Additionally, both indices have a heavy emphasis on the financials sector.
"In the last decade, conventional benchmarks have been increasingly used as substitutes for portfolios," Marten Hoekstra, CEO of Emerging Global Advisors, said in the press release. "A consequence of this in portfolios is industry concentrations that are a legacy of the historical maturation of emerging markets. We believe investors continue to respect the value of these indices as benchmarks, but in their own portfolios prefer to have a more diversified approach."
Max Chen contributed to this article.