Smaller Emerging Markets ETF Hot New Trend

October 16, 2014

Beyond ‘Beyond BRICs’ ETFs

Besides the “beyond BRICs” theme, we’ve seen additional innovation on the emerging market front this past year.

EGShares recently launched the first “revenue-based” emerging markets ETF. The EGShares Blue Chip ETF (BCHP) holds “developed market” companies that gain a significant portion of their revenues from emerging markets.

I expect more of these types of revenue-weighted emerging market ETFs in the coming years, including some based on MSCI’s “Economic Exposure” indexes.

Finally, there are a few recent filings in the pipeline that have caught my attention.

We’ll soon have a broad emerging market ETF from KraneShares that’ll track a version of the FTSE Emerging Markets Index, but with a major twist. The new fund will include full coverage of China’s A-share market, plus U.S.-listed China N-shares to its broad emerging market exposure.

The new KraneShares FTSE Emerging Markets Plus ETF offers investors a glimpse of what the Vanguard FTSE Emerging Markets ETF (VWO | C-89) might look like years from now when China eventually brings down barriers to foreign investment in its domestic market.

Finally, WisdomTree’s filing for its Emerging Markets ex-State-Owned Enterprises Fund looks interesting.

This new fund will likely tilt away from the usual financial and energy sectors dominated by SOEs and offer investors something new: an emerging market fund that tilts toward sectors dominated by entrepreneurial companies.

As quantitative easing draws to a close in the U.S. and certain emerging markets veer off from the rest of the pack in terms of size and demographic trends, I only expect more innovation on the emerging market ETF front.

These newer emerging market ETFs tied to specific themes, or those that challenge conventional definitions of “emerging markets,” could continue to gain momentum. Stay tuned.



At the time this article was written, the author held a long position in BBRC. Contact Dennis Hudachek at [email protected], or follow him on Twitter @Dennis_Hudachek.

Find your next ETF

Reset All