Virtus ETF Solutions, a unit of Virtus Investment Partners, Inc. (NASDAQ: VRTS), launched the Virtus Glovista Emerging Markets ETF (NYSEARCA: EMEM) Thursday. The new exchange traded fund was launched in partnership with Glovista Investments LLC.
The new ETF tracks the Solactive Most Favored Nations Emerging Markets Index. That benchmark “is an index of stocks from most favored countries selected from a universe of large liquid Emerging Market countries (currently fifteen). The index is designed to provide diversified exposure to stocks within large liquid countries in Emerging Markets while avoiding exposure to the stocks within weakest countries based on Glovista’s proprietary quantitative methodology,” according to Virtus.
EMEM represents a smart beta departure from traditional, cap-weighted emerging markets ETFs, which are usually heavily allocated to small number of countries. For example, the MSCI Emerging Markets Index allocates over half its combined weight to China, South Korea and Taiwan. EMEM caps single-country allocations at 10%.
Macro, fundamental and momentum factors are used in the securities selection process in EMEM. Stocks from the top five countries are overweighted while the bottom five countries in the fund’s geographic screen are eliminated.
“Our global macro philosophy emphasizes choosing countries and currencies within the sector as opposed to relying on stock selection to achieve long-term returns,” said Dr. Carlos Asilis, Glovista co-founder, chief investment officer, and co-portfolio manager, in a statement. “This approach allows us to aggregate multiple models that capture macroeconomic trends, bottom-up fundamental analytics, and relative price momentum dynamics.”