Deutsche launches ‘core’ MSCI emerging markets ETF

Jun 27th, 2017 | By | Category: Equities

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Deutsche Asset Management has launched the Xtrackers MSCI Emerging Markets Index UCITS ETF (XMME) on London Stock Exchange and Deutsche Börse. Introduced as part of Deutsche’s ‘core’ range of ETFs – low cost, diversified funds designed to act as foundational building blocks for portfolio construction – the fund comes with a price tag of just 0.20%.

Deutsche launches core MSCI emerging markets ETF

The Xtrackers MSCI Emerging Markets Index UCITS ETF is one of the cheapest ways to access the performance of the widely-followed MSCI Emerging Markets Index with fees of just 0.20%.

The underlying MSCI Emerging Markets Index comprises large and mid-cap stocks that represent at least 85% of the free float market capitalization of each sector within the entire emerging markets universe.

There are 27 countries represented in the index of which the largest by weight are China (23.8%), South Korea (15.6%), Taiwan (12.5%), India (8.9%) and South Africa (6.5%).

MSCI recently announced its intention to start including Chinese A-Shares within its global indices; consequently, the index provider plans to add 222 China A Large Cap stocks, representing on a pro forma basis approximately 0.73% of the weight of the MSCI Emerging Markets Index at a 5% partial inclusion factor. A two-step inclusion process will be used to account for the existing daily trading limits on Stock Connect.

The first inclusion step would coincide with its May 2018 Semi-Annual Index Review followed by the second step which would take place as part of the August 2018 Quarterly Index review.

MSCI also recently upgraded Pakistan from frontier market to emerging markets status following the firm’s latest market reclassification review. Pakistan was removed from the MSCI Emerging Market Index in December 2008 due to the temporary closure of the then Karachi Stock Exchange; since May 2009, MSCI included the country in the MSCI Frontier Markets Index. 

The inclusion of the country back into the MSCI Emerging Markets Index, which was initially announced in May 2016 and re-confirmed in the latest review, took effect on market close on 31 May 2017.

The index’s sector allocations are dominated by the information technology (26.9%) and financials (25.9%) sectors, followed by consumer discretionary (10.7%), materials (7.0%) and consumer staples (6.8%).

The fund is accumulating in nature and trades in US dollars on the London Stock Exchange or in euros on Deutsche Börse Xetra.

There are several ETFs already listed in Europe which track the MSCI Emerging Markets Index including funds from providers HSBC, LyxorSource (recently acquired by Invesco), SPDR ETFs, iShares and UBS.

The iShares Core EM IMI UCITS ETF (LON: EIMI) is the largest, with AUM of $6.1bn and is also significantly cheaper than most of the other ETFs with a TER of 0.25%, although the UBS Emerging Markets UCITS ETF (SIX: EGUSAS) comes closest to competing on price with a TER of 0.32%; its AUM is $2.4bn.

Emerging market equities have experienced a good run of form over the past 18 months, with the MSCI Emerging Markets Index up just short of 30% since 1 January 2016.

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