iShares Launches Asia ETF, Minus Japan

February 03, 2012

iShares zeroes in on the Asia growth story with a new ETF that steers clear of Japan.

iShares launched a broad Asia-focused equities fund that appears to be designed to take advantage of the growth story emanating from China and spreading throughout the region to developed and developing countries alike. Pointedly, it doesn’t include any allocation to debt-gorged Japan.

The iShares MSCI All Country Asia ex Japan Small Cap Index Fund (NasdaqGM: AXJS) comes with a 0.75 percent expense ratio, and provides exposure to Australia, China, Hong Kong, India, Indonesia, Singapore, South Korea, the Philippines, Taiwan and Thailand. Despite the many countries, the fund is still considered “nondiversified” under the Investment Company Act of 1940.

While some analysts currently worry Chinese growth is flagging, few argue China isn’t poised to be the global engine of growth in the coming decades. China had an 8.9 percent annualized growth rate in the fourth quarter, lower than the 9.7 percent growth it started the year with. And though some analysts are predicting 7.5 percent growth for 2012, that figure beats the Fed’s projected 2.5 percent growth for the U.S. economy in 2012.

The new iShares fund consists of stocks in companies from a wide variety of sectors including financials, information technology, industrials, materials, energy and utilities. The average market capitalization of the companies included in the index is $7.54 billion.

AXJS uses a representative or sampling approach to choose its securities, which means it won’t own all the securities in the index.

Stocks are chosen on the basis of investment characteristics such as market capitalization and industry weightings, and fundamental characteristics such as return variability and yield, according to the fund prospectus.

Nasdaq Listing

Listing ETFs on Nasdaq isn’t new for iShares, though today’s launch of the Nasdaq-listed AXJS has a different sort of resonance.

The world’s biggest ETF firm appears to be broadening its horizons in terms of primary listing venues. Industry sources reckon the San Francisco-based firm may be shopping around to lower costs.

This week, iShares launched a total of seven funds—five on the New York Stock Exchange’s electronic-trading platform, Arca; one on BATS; and AXJS on Nasdaq.

While the NYSE remains by far the most popular primary listings venue—over 90 percent of the U.S. ETFs are said to be listed there—2012 may well end up being the year that Nasdaq and BATS make a serious dent in Arca’s dominance.

BATS, the No. 3 U.S. exchange after the NYSE and Nasdaq by value of assets traded, got into the primary listing business this year. It was a catchy gesture that the biggest company in the space, iShares, was its first client in its new line of business.

iShares has now listed four ETFs on BATS, and has five more in the pipeline to go live with the Kansas City, Mo.-based exchange as their primary listing venue.



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