EGShares goes ‘beyond BRICs’ with launch of two specialist emerging market ETFs

Aug 15th, 2012 | By | Category: Equities

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Emerging Global Advisors, a US-based emerging market ETF specialist, has announced the launch of two new ETFs, the EGShares Beyond BRICs ETF (BBRC) and the EGShares Emerging Markets Domestic Demand ETF (EMDD).

EGShares goes ‘beyond BRICs’ with launch of two specialist emerging market ETFs

Key ‘Beyond BRICs’ countries include Mexico, Malaysia, Thailand, Indonesia, South Africa and Turkey.

The funds provide exposure to less mature emerging market countries and sectors more heavily influenced by organic domestic demand growth than by exports to struggling developed markets.

With more than 90% of all emerging market equity ETF assets tracking the MSCI Emerging Market Index and other ‘blue chip’ indices, many core portfolios are dominated by countries and sectors that are further along the economic development path that progresses from frontier to developed market status.

Two ’emerging market’ countries that epitomise this progression are South Korea and Taiwan. These two countries account for over one quarter of the MSCI Emerging Market Index, and yet the International Monetary Fund (IMF) graduated these countries to advanced status back in 1997.

Whilst South Korea was undoubtedly an emerging market several decades ago, it is questionable whether the country warrants the classification today. The country has gone from a level of economic development similar to nations in Africa and Central America to become a advanced, dynamic, high tech power. Other factors pointing to South Korea’s developed market status include demographics, urbanisation, financial market infrastructure, global trade integration and political environment.

A similar, though perhaps less persuasive, case can be made for Taiwan, which has a Human Development Index score comparable to developed countries. And whilst the BRICs (Brazil, Russia, India and China) remain emerging market countires, they have nonetheless undergone much development in recent years. All these countries have progressed considerably further along the economic development path than, say, Malaysia, Thailand, Indonesia, South Africa or Mexico – key ‘Beyond BRICs’ countries.

With the EGShares Beyond BRICs ETF, which invests in less mature emerging market countries, investors can access opportunities that exist earlier on this development path whilst still avoiding the more risky frontier markets.  They can also, via the EGShares Emerging Markets Domestic Demand ETF, gain greater exposure to less mature sectors within emerging markets (including those of BRICs) that are less dependent on developed market demand, such as consumer staples, consumer discretionary, utilities and health care. These domestic demand sectors tend to be better leveraged to domestic emerging market growth.

Commenting on the launch, Marten Hoekstra, CEO of Emerging Global Advisors, said: “EGShares BBRC and EMDD ETFs represent alternatives to those broad benchmarks which typically reflect the most mature countries and sectors in emerging markets.

“To attempt to meet the need for exposures to less mature countries, we created the EGShares Beyond BRICs ETF. To attempt to meet the need for exposures to less mature sectors, we created the EGShares Emerging Markets Domestic Demand ETF.

“BBRC and EMDD are components of what we believe is a modernised EM core portfolio and are the latest outcome of our mission to provide investors with the tools they need to get the exposures they want in emerging markets.”

Fund Details

EGShares Beyond BRICs ETF (BBRC) provides broad exposure to the less mature emerging market countries outside of the BRIC nations (Brazil, Russia, India and China). BBRC tracks the Indxx Beyond BRICs Index, a free-float market-capitalisation weighted index of 50 stocks from a universe that includes Chile, Colombia, Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Morocco, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The ETF trades on NYSE Arca under the ticker symbol BBRC.

EGShares Emerging Markets Domestic Demand ETF (EMDD) includes five sectors that Emerging Global Advisors believes may be most influenced by organic growth within emerging market economies. EMDD offers exposures to consumer staples, consumer discretionary, telecom, utilities and health care companies. EMDD tracks the Indxx Emerging Markets Domestic Demand Index, a free-float market-capitalisation weighted, 50-stock index, providing exposure to 11 countries and currencies. The ETF trades on NYSE Arca under the ticker symbol EMDD.

Both funds come with a net expense ratio of 0.85%.

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