UBS Asset Management has launched a new ETF in Europe providing broad emerging markets exposure while avoiding stocks from China.
UBS has introduced a new ETF enabling investors to unpack China from their emerging market allocations.
The UBS LUX FS MSCI Emerging Markets ex China UCITS ETF has been listed on SIX Swiss Exchange in Swiss francs (EMXCN SW) as well as on Deutsche Börse Xetra in euros (4UBL GY).
The fund offers investors the ability to unpack China from their emerging markets portfolios, allowing them to then separately and more precisely manage their allocation to Chinese equities.
Historically, China’s size, population, ongoing market liberalization, and growth rate were all factors supporting an allocation that was tilted in favour of the Asian superpower.
However, significant economic problems have emerged in China in recent weeks including a deepening real estate crisis, consumer price deflation, falling exports, and soaring youth unemployment, worrying signs that will likely lead many investors to reduce their overall exposure to Chinese equities.
Methodology
The ETF tracks the MSCI Emerging Markets ex-China Index which consists of large- and mid-cap companies within 23 developing economies excluding China.
With 666 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
China is the largest country exposure within the parent MSCI Emerging Markets Index with a weight of 30.7%. Its exclusion, therefore, significantly alters the country weightings in the ex-China index compared to the full EM universe. Taiwan is bumped up to the top spot with a weight of 21.3%, up from 14.7%, followed by India (20.5%), South Korea (17.9%), and Brazil (7.9%).
Information technology and financials lead the index’s sector exposures with weights of 26.7% and 24.5% respectively, followed by materials (10.5%), industrials (6.8%), and consumer discretionary (6.6%). The largest single constituents are Taiwan Semiconductor (9.0%), Samsung Electronics (5.3%), and Reliance Industries (1.9%).
The ETF comes with an expense ratio of 0.16%.
There are two existing EM ex-China ETFs available in Europe – the $100 million iShares MSCI EM ex-China UCITS ETF (EXCH) has an expense ratio of 0.18% while the $450m Lyxor MSCI Emerging Markets Ex China UCITS ETF (EMXC) costs 0.15%.