Things got interesting in the exchange traded fund (ETF) world this week: a new firm launched a a pair of new funds that track a new sector in a market that’s getting hot. Emerging Global Advisors‘ first offering to ETF investors are a pair of funds targeting specific sectors within emerging markets.
- EGS Emerging Markets Energy Fund (EEO) tracks a basket of 30 of the largest emerging market companies within the oil and gas industry in 13 countries. The top country weightings are Russia (36.3%), India (18.9%), China (16.8%) and Brazil (9.5%).
- EGS Emerging Markets Metals & Mining Fund (EMT) tracks a basket of the 30 largest emerging market companies in the metals and mining sectors within nine countries. The top country weightings are South Africa (30.9%), Brazil (23.2%), China (16.5%) and Russia (13.2%).
The expense ratio for both clocks in at 0.85%.
CEO Robert Holderith was formerly at ProShares as managing director of sales and analytics.
The ETFs are based on the Dow Jones Emerging Markets Sector Titans indexes, of which there are 11, including a composite index. As of Wednesday, the composite index was up 38.9% year-to-date. Other forthcoming sectors will include basic materials, consumer goods, consumer services, financials and health care, according to the Securities and Exchange Commission (SEC) filing. Eventually, the company wants to launch a total of 12 sector funds.
Holderith told us that the line of funds are designed to give investors the ability to use active investment management strategies in areas where liquidity isn’t always available.
In the past, some exchanges in emerging countries have completely shut down. By looking at sectors and diversifying across a number of different markets, the exposure to liquidity issues can be cushioned.
Richard Kang, chief investment officer and director of research and Emerging Global Advisors, noted that investors’ tastes when it comes to ETFs, as well as how they use them, appears to be shifting. By looking at the trading volume for some of the largest broad-based ETFs, “It must be a short holding period. If that’s true, we’ve evolved in that the ETF industry is a transitional or hedging tool.”
Now that the major indexes have been adequately covered by the ETF industry and investors are increasingly becoming more sophisticated and more tactical, the next wave is quickly shaping up to be products that focus on new and interesting strategies and markets, including hedge fund replication, commodities and inverse funds.
Emerging Global Shares’ website will go live later today.
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.