How to Effectively Harness Emerging Markets Growth | ETF Trends

It’s not uncommon for ETFs to change indexes and investment objectives and there are examples of those shifts working in investors’ favor.

The jury is still out on the VanEck Vectors China Growth Leaders ETF (GLCN) and the VanEck Vectors India Growth Leaders ETF (GLIN), which are new takes on old VanEck funds tracking those markets. GLCN and GLIN debuted earlier this month.

The new indices select the top-ranked companies in each market based on the index provider’s proprietary fundamental scoring methodology that emphasizes growth at reasonable valuations. Companies of all market capitalizations are eligible for inclusion in each index. Additionally, the new index for GLCN broadens the universe of Chinese companies eligible for inclusion from the fund’s current index. The new index that GLCN will seek to track includes locally listed China A-shares, as well as Chinese companies listed on eligible stock exchanges as determined by the index provider, allowing investors to access leading growth companies from the full China opportunity set.

Why It’s Important

The new looks for GLCN and GLIN refresh their growth appeal, steering investors away from lagging emerging markets value fare.

“Our approach is decidedly bottom-up and grounded in stock selection. We believe that the important macroeconomic factors driving growth in these countries can be harnessed by owning the companies best positioned to profit from those trends and thus compound growth over many years,” said VanEck in a recent note. “Our China and India Growth Leaders Indices were built based on this approach. Selecting the constituents of these Indices requires both knowing what to include (the highly-rated companies) and knowing what to exclude (low-rated companies).”

Effective May 1, 2020, GLCN will seek to track, before fees and expenses, the MarketGrader China All-Cap Growth Leaders Index. GLIN will seek to track, before fees and expenses, the MarketGrader India All-Cap Growth Leaders Index.

MarketGrader’s index construction methodology, which is more than two decades old, also investors avoid value traps and companies with poor quality traits.

“Broad-based indices that cover the entire market may include companies with poor growth, value or quality attributes,” adds VanEck. “By incorporating MarketGrader’s scoring methodology and applying it to a broad universe of stocks, investors may be able to sidestep some of the troublesome companies that are held in the benchmark indices.”

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.