‘David’ Emerging Market ETF Vs ‘Goliaths’

April 04, 2018

Every once in a while, an ETF hits all the right notes at the right time. The WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) fits that category.

Broadly, the fund competes in a space that has been hugely popular with investors: emerging market equity ETFs.

In 2017, investors poured more than $160 billion into international equity ETFs—almost as much as they did into U.S. equity funds—and emerging market funds were big in-takers, with ETFs like the iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO) among the year’s most popular strategies.

So far in 2018, that demand for emerging market exposure has gone unabated, benefiting large and small ETFs in the segment alike. Asset leaders like IEMG, VWO and the iShares MSCI Emerging Markets ETF (EEM) have seen more than $9.5 billion in combined net creations year-to-date; the smaller XSOE has attracted almost $80 million in net assets under management (AUM), bringing it to $92.6 million in total AUM.

Performance Angle

XSOE’s growing resonance with investors among some well-established competition has a lot to do with how the portfolio is performing. In the past 12 months, this small ETF has outperformed its main competitors such as IEMG and VWO by as much as 10 percentage points, as the chart below shows.

 

 

This outperformance has been a trademark of XSOE since it came to market in December 2014, beating the likes of IEMG, VWO, EEM and even the Schwab Emerging Markets Equity ETF (SCHE) to date.

 

 

Due to the fund’s exclusion of state-owned emerging market companies—defined as any company in which the government owns at least a 20% stake—the portfolio tilts differently than other vanilla approaches. XSOE offers smaller concentrations in financials and energy sectors, and larger ones in consumer-focused and tech names.

 

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