Given the ongoing concerns in most of the popular emerging market nations, investors are increasingly looking for funds that provide exposure to countries outside the BRIC (Brazil, Russia, India and China) group of nations.
Having sensed that, iShares, the world’s biggest exchange-traded fund company, has recently come out with a fund that seeks to provide exposure to some of the smallest emerging market nations, while excluding the large BRIC markets.
The new ETF trades under the name iShares MSCI Emerging Markets Horizon ETF (EMHZ), and we have highlighted some of the key details of the product below:
EMHZ in Focus
The newly launched ETF seeks to provide exposure to large- and mid-cap stocks in the smallest emerging market countries by tracking the MSCI Emerging Markets Horizon Index.
The fund provides no exposure to popular emerging market countries like the BRIC nations and also excludes the highly advanced emerging markets of South Korea, Taiwan and South Africa.
Instead a smaller emerging market – Mexico – dominates the fund, followed by Malaysia, Indonesia and Thailand.
The fund also has single-digit exposure to other smaller emerging market nations like Turkey, Poland, Chile, Colombia, the Philippines and Greece.
Presently, the fund holds 185 securities with less than 20% allocated to its top 10 holdings. The fund charges 50 basis points as fees as compared to the average category expense ratio of 64 basis points.
How does it fit in a portfolio?
The ETF could be an interesting pick for those seeking exposure to emerging market nations beyond BRICs and other larger emerging market nations. And with some of the troubles that we have seen in BRICs this year — especially in Russia and China — this ETF could be worth considering for those who believe that the best days for the BRICs are over and that other emerging markets are ready to lead the space.
Further, the issuer believes that many smaller emerging market countries are in earlier stages of development than their larger counterparts and thus have plenty of scope for growth.
Also, smaller emerging market countries are usually less correlated with the global economy and also have low levels of correlation to each other. Hence, this product is expected to provide increased diversification to investors.
Competition and Bottom Line
The emerging market ETF world is huge and has quite a number of popular funds in the space such as Vanguard FTSE Emerging Markets ETF (VWO) and iShares MSCI Emerging Markets Index Fund (EEM).
However, the space has hardly any funds that look to provide exposure outside both the BRIC nations and the highly advanced emerging markets of South Korea, Taiwan and South Africa.
Having said that, there are a few that go ‘beyond BRICs’, though the space is still relatively sparse. In particular, the EG Shares Beyond BRICs ETF (BBRC) might pose as a strong competitor to the newly launched fund.
This fund not only excludes BRIC companies from its portfolio, but also presently doesn’t have any exposure to the other well advanced emerging market nations like South Korea and Taiwan. Rather, the fund provides exposure to other well-positioned nations like Mexico, South Africa, Malaysia and Qatar.
BBRC manages an asset base of $316.5 million and charges 58 basis points as fees per year.
Another fund in the “beyond BRIC” category is SPDR MSCI EM Beyond BRIC ETF (EMBB). The fund also excludes BRIC companies from its portfolio, giving big weights to countries like Taiwan, South Africa and South Korea. However, EMBB is quite unpopular and illiquid with less than $5 million AUM, a fraction of many of the other products in the emerging market space.
Thus, EMHZ might face some competition from these two funds. However, there is still a chance it could survive among the other two ETFs, given the difference in country exposure. This might be true if both the BRIC and some large popular emerging market nations continue to falter. In that case, we are sure to see some interest in this newly launched fund from iShares.
EGS-BEYOND BRIC (BBRC): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
ISHARS-EMG MKT (EEM): ETF Research Reports
SPDR-M EM BBRIC (EMBB): ETF Research Reports
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