By Steven Orlowski
According to its website, the fund seeks:
investment results that correspond to the price and yield performance of the S&P Emerging Markets Core Index. The S&P Emerging Markets Core Index is a modified equally weighted index designed to measure the market performance of up to 116 leading companies that S&P Dow Jones Indices determines to be representative of all industries domiciled in emerging market countries, using a rules-based methodology.
As such, the fund does attempt to distinguish itself from other "core" emerging market ETFs.
According to a company representative, the fund is the only:
ETF tracking the S&P Emerging Markets Core Index, an investment index that provides greater country and industry diversification than conventional emerging market benchmark indices such as the MSCI Emerging Markets Index and the FTSE Emerging Index.
The representative further explains that:
The initial concept for the S&P EM Core Index was conceived by Emerging Global Advisors. The Index, designed, calculated, published and maintained by S&P Dow Jones Indices, seeks to avoid the industry and mature economy concentrations of conventional benchmarks which result from their market-cap weighting approach, in addition to their inclusion of developed economy constituents. It seeks to reduce concentration in legacy frontier market industries, broaden country diversification and tap into available liquidity to gain exposure to potentially emerging industries. The rules-based Index focuses on industry groups as index building blocks, contains no developed economy constituents and adopts an equal weighting modified by a country capping approach.
I like the sound of this from an asset allocation standpoint -- in theory at least. When building a portfolio, especially when looking for higher rates of growth, some of the universal characteristics of emerging market ETFs is to overweight the BRICs: Brazil, Russia, India, and China. This is problematic from the risk of unintentionally overconcentrating in too few regions. It also exposes your portfolio to underperforming "emerging" markets that have seen grand reductions in rates of growth.
As of the end of September, the BRICs were all in the top country allocations with a combined representation of 48.8% of the portfolio. If you add in South Africa (sometimes included in the acronym BRICS), then the combined allocation percentage rises to 63.8%. Other countries included are Chile, Malaysia, and Mexico at 7.5% each.
Sector weightings focus on Consumer Staples, Consumer Discretionary, Financials, Industrials, and Utilities at a combined 68.7% allocation. Some of the top 10 stocks are well-known commodities names such as Lukoil (OTCPK:LUKOY), Gazprom (OTCPK:OGZPY), Vale (NYSE:VALE), and Petroleo Brasileiro (NYSE:PBR).