EGA's Move Looks Promising

August 15, 2012

The emerging markets space got a bit more interesting with Emerging Global’s new launch of its ‘Beyond BRICs’ ETF.


Investors are eager to find the next “BRICs,” as Brazil, Russia, India and China experience growing pains after their spectacular growth run since the turn of the century.

New acronyms like MIST, CIVETS, MINT and N-11 are now being thrown around to target specific countries touted as the next emerging markets opportunities.

But how about just emerging markets, ex-BRICs?

That’s what Emerging Global Shares is targeting with its launch of the EGShares Beyond BRICs ETF (NYSEArca: BBRC). BBRC is the first of its kind, targeting many of the smaller emerging markets that get little to no love in larger broad-based emerging markets ETFs.

Not only does BBRC specifically exclude the BRICs, it also excludes South Korea and Taiwan. This is significant because the two countries account for about a quarter of the weighing in the MSCI Emerging Markets Index.

Over 68 percent of the $131.7 billion in total assets in emerging markets equity ETFs are invested in the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).

So a majority of emerging markets investors accept South Korea and Taiwan as developing emerging countries, making BBRC not just an emerging markets ex-BRIC fund, but more of a “Beyond BRICTS” fund. The BRICTS countries—the BRICs plus Taiwan and South Korea—altogether make up over two-thirds of the weighting in VWO and EEM.

According to the fact sheet on the index provider’s website, the top five country weightings in the Indxx Beyond BRICs Index, as of August 2012, are South Africa at 18.7 percent; Mexico at 18.5 percent; Malaysia at 15.2 percent; Thailand at 13.9 percent; and Indonesia at 12.1 percent. The remaining countries in the index included Turkey, Poland, Philippines, Chile, Colombia and Peru.

The capitalization-weighted index consists of the 50 largest companies from these peripheral emerging markets. That makes BBRC more of a large-cap play than a total market fund. The index carries a 3.25 percent trailing 12-month dividend yield.

Since the fund is new, with no track record, I’ve charted BBRC’s underlying index against the MSCI Emerging Markets Index and MSCI BRIC Index.

Over the past year, the Indxx Beyond BRICs Index beat the BRICs index by over 14 percentage points, and has also outperformed the underlying index of VWO and EEM by almost 8 percentage points.

INDXX/BB/MSCI EM: Total_Returns_1_Year

Source: Bloomberg


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