IndexIQ Rolls Out Small-Cap Korea ETF

By
Cinthia Murphy
April 14, 2010
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EWYiShares MSCI South Korea Capped
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IndexIQ, a Rye Brook, N.Y.-based ETF firm known for its hedge fund replication strategies, launched a small-cap exchange-traded fund today focused on
South Korea, its third launch in a lineup that will include 13 small-cap strategies targeting commodities and Asian economies.

The IQ South Korea Small Cap ETF (NYSEArca: SKOR) follows two initial rollouts in late March, the IQ Australia Small Cap ETF (NYSEArca: KROO) and the IQ Canada Small Cap ETF (NYSEArca: CNDA), which tap into companies that produce raw materials that are in high demand in Asian economies. But SKOR will focus on manufacturing and technology, rather than commodities.

“The South Korean economy is booming,” IndexIQ Chief Executive Officer Adam Patti said in a telephone interview. “South Korea is one of China’s major trading partners, so investing in it is a good way to access
China’s growth as well.”

SKOR will allocate nearly 30 percent to industrial names, but it will also have some 19 percent tied to financials, 15 percent to materials and roughly 13 percent to consumer discretionary and technology, respectively.

Asian economies, led by China and
India, are among the hot spots in the global landscape right now. Other funds are focused on those markets, including the iShares MSCI South Korea Index Fund (NYSEArca: EWY), which has garnered nearly $3.5 billion in assets since its May 2000 inception.

But EWY is a large-cap fund and it carries a sizable allocation to technology, with nearly 20 percent of its portfolio tied to Samsung Electronics, Patti noted.

“Investing in small caps gives you a more diversified exposure to
South Korea
while allowing you to hone in on domestic themes,” Patti said. SKOR’s roster of 100 holdings has a weighted average market capitalization of $472 million.

Small-Cap Family

IndexIQ outlined all 13 of the small-cap ETFs it plans to offer in a filing with the Securities and Exchange Commission in March.

“The one thing that ties them all together is China,” Patti said in a previous interview, noting that many of the countries the funds are focused on are among
China’s top 10 trading partners.

The next launch will be the IQ Taiwan Small Cap ETF (NYSEArca: TWON), followed by another pair from
Asia, the IQ Hong Kong Small Cap ETF (NYSEArca: HKK) and the IQ Singapore Small Cap ETF (NYSEArca: SAX), Patti said.

The remaining three Asia-focused funds include the IQ Indonesia Small Cap ETF (NYSEArca: INNN), the IQ Malaysia Small Cap ETF (NYSEArca: MALA) and the IQ Thailand Small Cap ETF (NYSEArca: THAI), according to the SEC filing

IndexIQ also plans to introduce four funds focused on commodity companies, including the IQ Global Agribusiness Small Cap Equity ETF (NYSEArca: CROP), the IQ Global Natural Gas Small Cap Equity ETF (NYSEArca: IGAS), the IQ Global Crude Oil Small Cap Equity ETF (NYSEArca: IOIL) and the IQ Global Gold Small Cap Equity ETF (NYSEArca: GLZ).

Each fund will track an underlying index of the same name and will strive for a fully replicating strategy. However, the funds might at times hold a representative sample of equities in the indexes as they seek to replicate returns. The indexes were created by IndexIQ's parent company Financial Development Holdco LLC.

ETF DAILY DATA

Small-cap fund 'IWM' led inflows on Thursday, March 26, as total U.S-listed ETF assets ended the day at $2.087 trillion.

A number of iShares funds, including the bond funds 'TLT' and 'HYG' paced the firm's issuer-leading inflows on Wednesday, March 25. Total U.S.-listed ETF assets meanwhile dipped to just below $2.1 trillion.

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