Emerging Global Advisors expanded its line of emerging market exchange traded funds with a broad strategy that specifically excludes China for investors who want more control over their developing market exposure.
According to a press release, the EGShares EM Core ex-China ETF (NYSEArca: XCEM) started trading Wednesday, September 2. The new ETF has a 0.35% expense ratio.
XCEM will try to reflect the performance of the EGAI Emerging Markets ex-China Index, which tracks up to 700 emerging market companies, excluding those domiciled in China and Hong Kong.
“In today’s market environment, some investors have noted that China comprises a significant portion of broad-based emerging market benchmarks. That portion is growing as index funds in the category plan to increase their allocations to China through A-shares,” EGA President and Founder Robert C. Holderith said in the press release. “We launched XCEM to deliver core emerging market exposure independently of China, giving investors an option to refine their portfolios in light of other China holdings or market developments.”
For instance, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the widely observered MSCI Emerging Markets Index, includes a 22.8% tilt toward China, followed by 14.9% South Korea, 12.4% Taiwan, 8.6% India and 8.0% South Africa.
In contrast, XCEM excludes China but slightly ups its exposure to the other emerging markets, including South Korea 18.3%, Taiwan 15.8%, Brazil 13.6%, India 9.8% and South Africa 9.6%, among others.
Top holdings include Samsung Electronics 4.4%, Taiwan Semiconductor Manufacturing 2.1%, Banco Bradesco 1.7% and Naspers Limited 1.6%.
“The XCEM fund is a strong fit for investors who are looking to be more conservative in their approach to China without sacrificing opportunities in other emerging markets,” EGA Managing Director Jay McAndrew said in the press release. “It also addresses the needs of investors who have a point of view on China and are looking for greater control over the size and style of their exposure to this market.”
The China exposure may be a greater concern once major indices fully adopt mainland A-shares exposure. Currently, the MSCI Emerging Markets Index holds about 25% China exposure through H-shares, or Chinese stocks traded on the Hong Kong Exchange, but full China exposure could rise to 44% with A-shares inclusion, according to Emerging Global Advisors. Additionally, the FTSE Emerging Index holds about 28% China but could increase its exposure to 40% China with A-shares inclusion.
Consequently, in a diversified portfolio, investors may choose their China exposure with a country-specific ETF while still holding onto a broad emerging market position through XCEM.
For more information on new fund products, visit our new ETFs category.
Money managers who are looking into constructing their own ETFs may also be interested in attending the second annual ETF Boot Camp in New York later this month. Whether you’re an ETF start-up, fund company, broker dealer, pension plan, endowment, private equity firm, fund board independent director, 401k plan provider or ETF industry executive…this conference is designed for you. This one-of-a-kind event will condense everything you need to know about the inner workings of the ETF business into two days.
Max Chen contributed to this article.