Daily ETF Watch: iShares Plans 2 Funds

Proposed ETFs will target the emerging market space in seemingly fresh ways.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Recent filings from BlackRock’s iShares indicate that the ETF provider is continuing to expand its lineup of products providing exposure to the developing world. However, the two funds outlined in the filings are very different from each other—one covers a slice of the broad emerging and frontier market space and the other covers a single country in the frontier market category.

A BRIC Alternative?

The iShares MSCI Emerging Workforce ETF is really the first of its kind and represents a unique approach to developing-market investing that focuses specifically on demographics. The underlying index is derived from the MSCI Emerging + Frontier Markets Index and targets countries that have “favorable demographic criteria,” according to the prospectus.

That means it targets countries where the population’s average age skews younger and better educated as well as countries with high rates of urbanization and less reliance on agriculture. The prospectus noted that the index had 467 companies as of Oct. 1, and included the markets of Argentina, Brazil, Chile, China, Colombia, Egypt, Indonesia, Kuwait, Malaysia, Mexico, Peru, Philippines, South Africa and Turkey.

Once the demographic-selection criteria are applied to achieve an initial list of markets, countries representing less than 0.25 percent of the index are removed, and weights of individual countries are capped at 20 percent of the index at rebalancing.

The methodology seems to reflect the selection processes behind some of the popular emerging market acronyms, like BRIC. It’s designed to select countries with the potential for high growth, but Russia and India are noticeably absent from the initial list of countries.

However, there is a greater amount of overlap with the “CIVETS” concept, which includes Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. The CIVETS countries, which were selected and popularized by the Economist Intelligence Unit and HSBC, according to Wikipedia, feature dynamic economies and youthful populations.

Many of the countries in the proposed ETF’s index also show up in the Next 11 and MINT compilations of countries, as well as Tiger Cub economies.

But it should be noted that the index is more dynamic than an acronym—countries not meeting the requirements for inclusion can be added and removed regularly.

Saudi Arabia Fund

The other fund described in the iShares filings is the iShares MSCI Saudi Arabia Capped ETF. Currently, there are no ETFs that cover Saudi Arabia’s market exclusively, although both Van Eck’s Market Vectors and Global X have Saudi Arabia funds in registration.

It isn’t really represented in any ETFs, at least not on any major scale, from the appearance of things: Saudi Arabia has significant restrictions on foreign investment—similar to China’s—though there has been some movement to ease those limitations and open the markets. In fact, the ETF’s index provider, MSCI, doesn’t even currently include Saudi Arabia in its regular index families, instead calculating a “domestic” stand-alone index.

The iShares fund would track the MSCI Provisional Saudi Arabia Investable Market 25/50 Index.

However, it appears the fund will not launch until Saudi Arabia’s markets open up: The prospectus notes that “The Underlying Index is designed to measure the potential equity market in Saudi Arabia, should the market open up to foreign investors.”

Neither filing mentioned a ticker or expense ratio.

 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.