Yesterday we covered what seems to be the new paradigm at least for this week, and that is strength in Emerging Markets equities (particularly Brazil, China, and even Russia lately) with no correlation it seems to U.S. equities.
In other words, we have seen a uni-directional rally in short order in names like EWZ (iShares MSCI Brazil, Expense Ratio 0.60%), EEM (iShares MSCI Emerging Markets, Expense Ratio 0.67%), and FXI (iShares China Large Cap, Expense Ratio 0.73%), and are watching vigilantly to see if there are any substantial fund flows in either direction in any of these or related ETFs in the near term.
Outside of these specific ETFs, we are also watching “Low Vol” products in the EM space that are of course much newer to the marketplace and a recent area of fund innovation that some portfolio managers may not even be aware of yet.
EEMV (iShares MSCI Emerging Markets Minimum Volatility, Expense Ratio 0.25%) has raised nearly $2 billion since its October 2011 inception, and that is even with losing more than $300 million in year to date assets via redemption activity.
This impressive asset raising makes EEMV the fifth largest ETF in the Emerging Markets equity category, behind behemoths such as VWO (Vanguard Emerging Markets, Expense Ratio 0.18%) and the previously mentioned EEM. Two other “Low Vol” EM funds that we watch closely are EELV (PowerShares S&P Emerging Markets Low Volatility Portfolio, Expense Ratio 0.29%, $214 million in AUM) and HILO (EGShares Low Volatility Emerging Markets Dividend, Expense Ratio 0.85%, $58 million in AUM).
EELV tracks the S&P BMI Emerging Markets Low Volatility Index (224 holdings), and from a sector standpoint the largest concentration is in Financial Services (27.59%). EEMV tracks the MSCI Emerging Markets Minimum Volatility Index which has a bit different of a make-up as the previously mentioned index as one might expect, as there are 235 holdings and again the largest sector position is in Financial Services (23.58%).
HILO is interesting in that it targets thirty stocks and aims not only to deliver greater yields than cap weighted EM indexes but additionally provide a lower level of volatility. This specific concept, and the concept of lower volatility exposure to EM stocks in this suddenly volatile environment will undoubtedly increase the level of interest in these funds in the near term with money managers and investors.
iShares MSCI Emerging Markets Minimum Volatility ETF
For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.
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