First Emerging Markets Sector ETFs Launch

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Written by IndexUniverse Staff

Thursday, 21 May 2009 12:07

The growth in emerging markets can now be played by country-specific exchange-traded funds as well as broad-based stock portfolios.

But on Thursday, another option became available to investors. The first family of ETFs offering exposure to sectors within emerging markets was launched by New York-based Emerging Global Advisors.

EEO's Top 10	Wgt (%)
Russia	36.31
India	18.88
China (offshore)	16.32
Brazil	9.52
South Africa	6.82
Thailand	4.15
Chile	2.53
Colombia	1.87
Poland	1.61
Hungary	0.91

That's the group whose chief executive, Robert Holderith, has been a leader in developing new ways to unfreeze credit markets around the world. (See related article here.)

"Current ETF offerings generally limit investors to country or regional exposure, or require a more general investment in emerging markets," Holderith said in a statement. "We think there will be considerable interest in a family of products that provides diversified emerging market sector exposure in a highly transparent, highly liquid ETF format."

The new emerging markets sector ETFs are based on a Dow Jones series of its Titans indexes. According to EGA, the pair introduced this week are the first of a set of 10 being planned by the firm. The opening launch were for the:

EGS Emerging Markets Energy Fund (NYSE Arca: EEO). It tracks an index of the 30 largest emerging markets companies in the oil and gas industry across 13 countries.
EGS Emerging Markets Metals & Mining Fund (NYSE Arca: EMT). It includes 30 of the biggest emerging market companies in the metals and mining sectors across nine countries.

EMT's Leaders	Wgt (%)
South Africa	30.86
Brazil	23.20
China (offshore)	16.45
Russia	13.23
India	9.74
Mexico	2.60
Poland	1.49
Indonesia	1.36
Turkey	1.06

As first-movers in the market, the two new emerging markets sector ETFs are setting the cost bar for such a niche at an expense ratio of 0.85% apiece. But Holderith described the new sector ETFs as trading vehicles that would particularly open new avenues for institutional investors.

Despite the relatively high price tag, that might be enticing for hedge fund managers and other investment groups trying to shift large amounts across various emerging markets.

Richard Kang, who serves as the firm's director of research, noted that developing markets can run into rather severe liquidity problems at times. He pointed to the fact that stock exchanges in several emerging countries have been forced to completely shut down. That was the case in Russia during much of the worst of the global financial crisis, among others.

By taking a sector perspective across several different markets, he believes that traders will be able to cushion their exposure to such liquidity problems and diversify their portfolios in different ways. "The Emerging Global Shares ETFs are designed to give investors the ability to execute active investment management strategies in markets where the liquidity to trade is not always available," said Kang in a statement.