Ready For Big Bets Abroad?

February 24, 2012

For all of you risk-hungry investors out there, PowerShares has two new ETFs.

This morning, PowerShares launched two new high-beta ETFs: the PowerShares S&P Emerging Markets High Beta Portfolio (NYSEArca: EEHB) and the PowerShares S&P International Developed High Beta Portfolio (NYSEArca: IDHB).

Despite the slew of factor ETFs out there, these are the first that deliberately focus on riskier assets abroad in the chase for higher returns.

They both select and weight stocks on the basis of their beta, or sensitivity to market movements, over the past year. A stock’s beta essentially functions as its multiplier of market returns. All other factors held constant, if the market returns 1 percent, a stock with a beta of 2 would be expected to return 2 percent.

Of course, the opposite holds true as well—if the market falls by 1 percent, that same stock would be expected to fall by 2 percent.

What exactly is the market? EEHB defines its market as the S&P Emerging BMI Plus LargeMid Cap Index that it pulls its constituents from. Similarly, IDHB defines its market as the S&P Developed ex. US and South Korea LargeMid Cap BMI Index.

The high-beta screen and weighting scheme mean that EEHB and IDHB differ significantly from the broad emerging and developing market indexes. A look at each ETF’s country and sector allocations compared to comparable broad market ETFs confirms this intuition.

In the emerging space, I’ve compared EEHB to the SPDR S&P Emerging Markets ETF (NYSEArca: GMM), which tracks the S&P Emerging BMI Index. A notable difference between the two funds, before even considering beta, is that the S&P BMI Emerging Markets High Beta Index includes South Korea, while the S&P Emerging BMI Index doesn’t.

The table below shows the top countries in EEHB. You’ll notice that while EEHB’s 32 percent allocation to South Korea certainly skews it away from GMM, it doesn’t explain its over-allocation to Hong Kong.


South Korea 31.51% 0%
China 20.98% 19.96%
Hong Kong 8.53% 0.16%
South Africa 5.53% 9.80%
Brazil 5.25% 16.53%
Poland 5.07% 1.14%
Russia 4.07% 9.69%
Taiwan 3.38% 11.50%
Indonesia 2.77% 3.09%

Table 1. Top Country Weights – EEHB vs. GMM


EEHB is also significantly overweight in industrials and materials.


Consumer Discretionary 7.17% 8.15%
Consumer Staples 1.86% 8.14%
Energy 10.97% 17.72%
Financials 24.17% 21.74%
Industrials 21.66% 5.94%
Information Technology 6.41% 11.65%
Materials 26.97% 12.48%
Utilities 0.00% 2.72%
Health Care 0.38% 1.12%
Telecommunication Services 0.42% 8.29%

Table 2. Sector Weights – EEHB vs. GMM



Find your next ETF

Reset All