Of Rocky Top and Emerging Markets ETFs
March 10th, 2014 at 2:47pm by Tom Lydon
Tennessee, the Volunteer State, is the top holder or second-largest investor in 12 emerging market exchange traded funds, highlighting the growing usage of ETFs as an investment tool to gain targeted exposure to market areas.
The Tennessee Consolidated Retirement System is now one of the biggest investors of country-specific emerging market ETFs, reports Margaret Newkirk for Bloomberg.
According to the latest filing data, the state held 23% of assets in the Global X FTSE Colombia 20 ETF (NYSEArca: GXG), 24% of iShares MSCI India ETF (NYSEArca: INDA) and 34% of iShares MSCI South Africa ETF (NYSEArca: EZA). The retirement portfolio also included major positions in the iShares MSCI South Korea Capped ETF (NYSEArca: EWY), iShares MSCI Taiwan ETF (NYSEArca: EWT), iShares MSCI Thailand Capped ETF (NYSEArca: THD) and iShares MSCI Turkey ETF (NYSEArca: TUR).
Additionally, Tennessee is ranked second in asset holdings for other iShares ETFs, such as the iShares MSCI Chile Capped ETF (NYSEArca: ECH), iShares MSCI Indonesia ETF (NYSEArca: EIDO), iShares MSCI Malaysia ETF (NYSEArca: EWM) and iShares MSCI Poland Capped ETF (NYSEArca: EPOL).
According to Tennessee Chief Investment Officer Michael Brakebill, the investment would usually last five to 15 years and country exposure would be based on certain factors, like low corruption.
With ETFs, investors, advisors and institutions can access the emerging markets through specific countries, instead of relying on broad emerging funds based on indices like the cap-weighted MSCI Emerging Markets Index.
Consequently, investors can over- or underweight countries using ETFs based on their own outlooks. For instance, Indonesia only makes up 2.7% of the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the MSCI Emerging Markets Index. While EIDO outperformed with a 15.6% return year-to-date, EEM has declined 5.4% so far this year.
For more information on developing economies, visit our emerging markets category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.