First Emerging Markets Financial Sector ETF Launches

September 16, 2009

The first ETF to focus on emerging markets’ financial sectors launched on Wednesday.



Emerging Global Advisors LLC on Wednesday launched the first exchange-traded fund providing exposure to the largest emerging markets companies in banking, insurance, real estate and financial services.

The Dow Jones Emerging Markets Financial Titans Index Fund (NYSEArca: EFN) tracks the performance of the Dow Jones Emerging Markets Financial Titans 30 Index, which is comprised of the 30 largest financial companies in a 10-country region.

“We basically, exclusively, own this market, but we are starting to gain momentum and people are jumping on board,” Robert Holderith, chief executive of Emerging Global Advisors (EGA) said about his company’s emerging-markets-focused ETFs.

EFN should provide investors with enough diversification within the sector to cushion them from liquidity crunches often seen in the region.

“By design, our ETF is narrow in focus. But we are diversified across multiple countries so that we don’t carry country-specific risk,” Holderith said, noting that emerging markets have a history of changing political regimes and facing currency volatility.

But, similarly to other emerging markets ETFs EGA has launched, this one also comes with a price tag of 85 basis points, which some might consider relatively high.

Holderith believes costs should be judged on a relative basis, however.

“The price tag of ownership relative to what it costs to own the underlying local shares in all these markets, to open accounts in every country, to carry a generally wider spread, etc. -- is not high,” he said.

As of Sept. 11, the top five countries, according to weightings in the Dow Jones Emerging Markets Financial Titans 30 Index, were: China, with 39.71 percent; Brazil, 22.8 percent; India, 13.21 percent; South Africa, 9.25 percent; and Malaysia, 3.96 percent.

The top holdings included Industrial & Commercial Bank of China Ltd., Itau Unibanco S.A. and China Life Insurance Co. Ltd.

The index, which went live back on Dec. 31, 2005, has not been particularly more volatile than the domestic banking sector, Holderith said.

Nevertheless, it also dropped dramatically last year, and though it has rebounded significantly, it still would have to practically double before returning to its peak levels.

“There’s plenty of upside potential, as we see it,” Holderith said.

EFN brings to four the number of sector-based emerging markets ETFs introduced by Emerging Global Advisors. Others include: the Emerging Global Shares Dow Jones Emerging Markets Energy Titans Fund (NYSEArca: EEO); the Emerging Global Shares Dow Jones Emerging Markets Metals and Mining Titans Index Fund (NYSEArca: EMT); and the Dow Jones Emerging Markets Composite Titans Index Fund (NYSEArca: EEG).

You can read more about them here.



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