First Trust, the Wheaton, Ill.-based firm known mostly for its First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG), launched today an emerging markets exchange-traded fund that targets some of the largest companies in Brazil, India, China and South Korea, looking for these countries to lead the region in economic growth ahead.
With the International Monetary Fund projecting GDP growth in emerging economies to be nearly five times that of developed countries in 2010, First Trust is betting Brazil, India, China and South Korea will stand out from others in the region as investment in infrastructure as well as booming domestic consumption drive those economies. The new fund offers a twist on the traditional "BRIC" quartet of countries long favored by emerging markets investors, swapping out Russia for Korea.
The First Trust BICK Index Fund (NYSEArca: BICK) tracks the ISE BICK Index, which comprises 87 securities with a median market capitalization of $15 billion. Among its largest holdings are ICICI Bank, Satyam Computer Services, Tata Motors, Patni Computer Systems and Infosys Technologies, all of which individually represent less than 2.5 percent of the portfolio.
Many of BICK's holdings can also be found in First Trust’s other large-cap emerging markets fund, the First Trust ISE Chindia Index Fund (NYSEArca: FNI), though FNI lacks exposure to Brazil and South Korea. FNI has yet to attract sizable assets, having only $150 million in AUM since its May 2007 inception. But FNI’s price tag of 0.60 percent in annual fees is slightly cheaper than BICK’s 0.70 percent, and its portfolio is slightly bigger, at 100 holdings.
BICK will have a large focus on financials, with nearly 25 percent of its portfolio allocated to that sector. Information technology follows with a 22 percent weighting and materials with 13 percent. But the basket also includes allocations to industrials, telecommunications, energy, and consumer discretionary and staples among others.
The ISE BICK Index, the fund’s benchmark, uses an equal weighting methodology that ensures each country represents 25 percent of the portfolio, and companies within a country allocation are also equal weighted. The index is rebalanced quarterly.
In its investment case for the fund, First Trust lists Brazil’s dependence on commodities prices, India's liquidity issues, governmental concerns in China and South Korea’s dependence on trading partners as inherent risks of investing in the region, all of which could result in high volatility.
BICK adds to First Trust's roster of 42 other ETFs, six of which are international strategies. First Trust Advisors is the adviser for the fund.