Van Eck To Self-Index Africa, Mideast ETFs

April 22, 2013

Market Vectors continues its move to self-indexing with planned shift on two more ETFs.

Van Eck, the fund company behind the $23 billion family of Market Vectors ETFs, filed regulatory paperwork detailing a shift on indexes for a Africa-focused ETF and on a Mideast-focused ETF from Dow Jones indexes to two so-called self-indexes created by the company’s own indexing subsidiary.

The planned changes, which should take effect by early summer, cover the Market Vectors Africa ETF (NYSEArca: AFK) and the Market Vectors Gulf States ETF (NYSEArca: MES), and are just the latest of a series of similar index shifts the company has carried out since establishing its own Frankfurt-based indexing unit last year.

The Africa ETF, “AFK,” will shift to the Market VectorsGDP Africa Index from its current benchmark, the Dow Jones Africa Titans 50 Index; the Mideast ETF, “MES,” will switch to the Market Vectors GDP GCC Index from the Dow Jones GCC Titans 40 Index, according to the paperwork and the company’s website.

Market Vectors is a big part of the self-indexing trend in the ETF industry, which sources say is motivated by a desire to save money on indexing-licensing fees. Still, regulators are leery about the trend to the extent that it may compromise the independence that indexer providers have traditionally had from fund managers. Firms like WisdomTree and IndexIQ have built entire ETF lineups around self-indexes.

But even as the Securities and Exchange Commission has allowed smaller ETF firms such as Northern Trust’s FlexShares to begin using so-called affiliated indexes, it has yet to allow iShares, the world’s biggest ETF firm, to do so. The company’s parent, BlackRock, filed a petition to self-index in the summer of 2011, a delay industry sources say relates to iShares’ huge size.

Differing Index Methodologies

The existing indexes are rules-based, modified capitalization-weighted, float-adjusted benchmarks comprising publicly traded companies that, in the case of AFK, are headquartered in Africa or that generate the majority of their revenues in Africa and, in the case of MES, give investors exposure to the Gulf States.

For each of the two new Market Vectors indexes, the weighting of each country is determined by the size of its gross domestic product relative to the GDPs of the other countries represented in the respective indexes.

AFK’s new index currently has 106 holdings, more than twice as many as the 52 the fund now holds with the Dow Jones index. MES’ new index meanwhile holds 55 companies, compared with 43 currently.


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