Holding Caps and Weight Adjustments
• Country Weights: Target weight equal to float-adjusted market caps of universe prior to removal of SOEs3
• Sector Weights: Constrain differentials to 3% differentials from starting universe, after country adjustment
WisdomTree Emerging Markets ex-State-Owned Enterprises Index: Top 20 Index Holdings
For definitions of terms in the chart, please visit our glossary.
Information Technology Rises to the Top: Given emerging market governments’ low involvement in the Information Technology sector, we are not surprised that the weights of some of the largest companies increase after the state-owned enterprises have been removed. Although the sector is well-represented among the top five holdings, the Index caps sector differentials to 3%, compared to the starting universe, at each annual rebalance, in an effort to remain diversified and not take large sector risks.
As emerging market countries continue to grow and transform, investors will demand more ways to gain access to this unique asset class. Recently, some investors have expressed concern over state-owned enterprises, and they have sought tools to limit their exposure, even after understanding the valuation differences. These investors are interested in concentrating their exposure on the private sector and accessing higher growth potential. Although it is impossible to know which area will be more beneficial to focus on going forward, we think it is important to have different tools available, and the case for either exposure could be made, depending on an investor’s goals and objectives.
For full research on the Emerging Markets ex-State-Owned Enterprises Index click here.
1Source: The Economist, 11/22/14.
2Companies domiciled or incorporated in those countries but trading primarily on a U.S. stock exchange are also eligible for inclusion.
3The maximum country factor is set at 3.0, or no country’s weight can be increased more than 3x after state-owned enterprises have been removed.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments.