Insurance and financial services firm Nationwide rolled out another addition to its ETF lineup yesterday with the launch of a diversification-focused ETF with a socially responsible twist that targets emerging markets. The Nationwide Maximum Diversification Emerging Markets Core Equity ETF (MXDE) draws its holdings from roughly 20 countries in Asia, Europe and the Middle East, and Latin America.
MXDE has an expense ratio of 0.64% and lists on the NYSE Arca.
The fund joins the Nationwide Maximum Diversification U.S. Core Equity ETF (MXDU), which launched in September last year. MXDE tracks the TOBAM Maximum Diversification Emerging Index, which was built using the quantitative and proprietary MaxDiv Model, and centers around the proprietary Diversification Ratio. Essentially, the MaxDiv model is designed to maximize the diversification ratio.
The index starts by establishing its universe, screening out companies with less than $750 million in market capitalization and insufficient liquidity. Stocks can also be replaced by their corresponding depositary receipts if those are more liquid, the prospectus notes.
From there, the methodology introduces a socially responsible element, screening out companies that do not meet certain environmental, social or governance investment standards, including those that are involved in the production and sale of weapons or tobacco, human rights violations, corruption or environmental damage, among other criteria.
With that universe in place, the methodology seeks to lower the volatility of the index while achieving as much diversification as possible, based on the volatility of each constituent and its correlation to the other constituents.
It partly accomplishes this by limiting the weight of individual securities to 1.5% of the index, or 10 times what its weight would be in a cap-weighted index, whichever is lower. The index has further constraints on how much it can differ from its cap-weighted counterpart and its level of turnover, the prospectus says.
MXDU currently has more than $108 million in assets under management. Nationwide also offers two other risk-based ETFs, the Nationwide Risk-Based International Equity ETF (RBIN) and the Nationwide Risk-Based U.S. Equity ETF (RBUS), both of which also launched in September and have more than $110 million in assets under management.
Contact Heather Bell at [email protected]