EEB, BBRC To Change Indexes

August 28, 2013

But now, given that some H-share firms that aren’t part of a GDR are now perfectly fine from a liquidity standpoint, the fund will be able to pick up China exposure through such individual securities.

The increase to allocation in Russia will mean exposure to China and Brazil will fall in the new arrangement, and, from a sector-allocation perspective, the percentage of energy-related holdings will increase because of the heavy energy tilt in Russia’s economy.

Beyond Emerging Markets

The EGShares Beyond BRICs ETF, a fund that has had an alluring premise from the first, will add to that allure with its index change by focusing on frontier markets for the first time, as noted above.

At the time of its launch in August 2012, BBRC was pitched as a security designed to lead developing markets investing in a new direction. Surely, investors wouldn’t gravitate to funds like the Vanguard FTSE Emerging Markets ETFs (NYSEArca: VWO) or the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) forever.

Indeed, returns on funds like VWO and EEM are now correlated rather closely with developed market equities, undermining one of the main attractions of emerging markets investing.

Moreover, from a returns perspective, it’s not preposterous to worry that the best returns on funds like VWO that focus on bigger companies in the emerging markets may well be in the past.

But the two aims in developing-markets investing—low correlations and relatively high expected returns—are likely to be enhanced in the new BBRC. That’s because the fund’s new benchmark, the FTSE Beyond BRICs Index, will allow for up to a third of the fund’s allocation to be on so-called frontier markets. The fund will drop the Indxx Beyond BRICs Index at the time of the change.

The new index will also allow for up to 75 percent of holdings to be in more economically developed emerging market countries.

“This means this fund is going to have United Arab Emirates and Qatar as heavyweight frontier markets and then maybe Vietnam,” IU’s Dennis Hudachek said.

“I like this fund, but it’s really hard to compete against VWO and EEM, and having FTSE in there is a big step toward that rebranding. Investors will likely be a lot more willing to buy into a fund with a major index behind it,” he added. The fund is down 11.9 percent YTD through Aug. 27.

 

 

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