iShares Plans Emerging Markets Energy ETF

November 02, 2011


iShares, the world’s largest provider of exchange-traded funds, filed paperwork with the U.S. Securities and Exchange Commission to market a fund targeting the emerging markets energy sector, an area of the ETF universe that currently has only one contender.

The iShares MSCI Emerging Markets Energy Sector Capped Index Fund goes into the product pipeline at a time when energy demand has been booming, largely because of high growth rates in emerging market countries such as China and India.

Only two funds track at the energy sector in the emerging markets, according to IndexUniverse’s ETF Classification System. Those are the $15.3 million EGShares Energy GEMS (NYSEArca: OGEM) and the even-smaller Global X China Energy ETF (NYSEArca: CHIE), which has $4 million in assets, according to data compiled by IndexUniverse.

The new iShares fund would deliver pinpoint accuracy to a pocket of the investment universe iShares already targets via its $34.16 billion MSCI Emerging Markets Index Fund (NYSEArca: EEM), which has about 14 percent of its holdings in energy companies.

The new Emerging Markets Energy Sector Capped Index Fund will be based on a MSCI index of oil, gas and energy services companies located in 15 different countries -- 14 if China and Hong Kong are counted as one. Those countries mentioned in the filing are: Brazil, China, Colombia, Hong Kong, Hungary, India, Indonesia, Malaysia, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey.

The ETF will use a representative indexing strategy, which means it won’t own all the securities in the underlying index.

iShares said in the filing that at least 80 percent of the fund’s assets will be invested in the securities of the underlying MSCI index or in depository receipts that represent the index.

The fund will also have a capping methodology that assures a degree of diversification in an asset class where returns among different companies can diverge widely.

Specifically, the fund will limit the weight of a single component to a maximum of 25 percent, and will also limit companies with weights of more than 5 percent to an aggregate of less than half the whole fund’s size.


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