Market Vectors is making a push into the world of so-called quality or factor-based exchange traded funds, one of the fastest-growing segments of the ETF industry, with Thursday’s launch of four global funds.
“Quality matters. Quality as an investment factor has historically outperformed broad international and emerging markets equities with relatively lower volatility over long time periods, but until now, a quality–‐focused, factor–‐based approach has usually been accessible only through active strategies,” said Amrita Bagaria, International Equity ETF Product Manager with Market Vectors, in a statement.
“We’re very excited to introduce these quality factor ETFs to the broad investment marketplace, and we are particularly pleased to be partnering with MSCI, a global leader in international indexing. We have heard the concerns of investors who understand that you need to be selective and find a way to identify quality stocks, because you don’t necessarily want to hold every single company when investing in international or emerging markets.”
Factor and quality ETFs fall under the purview of the smart beta theme. In 2013, smart beta ETFs attracted $65.1 billion in new assets, nearly double the $34.2 billion hauled in by the group in 2012. [A Record Year of ETF Inflows]
The new Market Vectors ETFs include the Market Vectors MSCI International Quality ETF (NYSEArca: QXUS). QXUS has 373 holdings that are selected from the MSCI ACWI ex USA Index. Those stocks are selected based on high return on equity, stable year-over-year earnings growth and low financial leverage, according Market Vectors.
The U.K. and Switzerland combine for 36.3% of the new ETF’s country weight. QXUS has annual fees of 0.45%. Market Vectors also introduced a dividend-oriented equivalent in the form of the Market Vectors MSCI International Quality Dividend ETF (NYSEArca: QDXU), which also pulls over 300 holdings from the MSCI ACWI ex USA Index.
Although nearly 35% of QDXU’s combined weight is allocated to the U.K. and Canada, the rookie fund has exposure to at least six emerging markets. Forty seven percent of the fund’s weight goes to financial services and energy names.
The two new factor-based emerging markets funds from Market Vectors are the MSCI Emerging Markets Quality ETF (NYSEArca: QEM) and the MSCI Emerging Markets Quality Dividend ETF (NYSEArca: QDEM).
QEM selects growth stocks based on high return on equity, stable year-over-year earnings growth, and low financial leverage from the MSCI Emerging Markets Index. China, South Africa and Taiwan combine for 41% of QEM’s country weight.
QDEM tracks the MSCI Emerging Markets High Dividend Yield Index, which is home to companies “that have demonstrated dividend yields that are higher than average and deemed by the Index Provider, MSCI, to be both sustainable and persistent,” according to Market Vectors.
China, South Africa and Russia combine for almost 58% of QDEM’s weight. Not only are China and Russia two of the least expensive emerging markets on valuation, but the two countries are also two of the biggest dividend payers in the developing world. [Get Paid to Play in Emerging Markets]
QDEM and QEM charge 0.5% per year.
QDEM Sector Weights
ETF Trends editorial team contributed to this post.