Emerging Global, SSgA Float New ETFs

• Trang Ho
• On 6:04 pm EDT, Monday September 21, 2009

Emerging Global Advisors has launched its fourth ETF: Dow Jones Emerging Markets Financial Titans Index Fund .

The fledgling ETF provider's new portfolio holds the 30 largest companies engaged in banking, insurance, real estate, investing or financial services in emerging markets.

"The financial infrastructure is crucial to any expanding economy," said Robert Holderith, chief executive of Emerging Global Advisors. "If you want to build commercial and residential real estate, manufacture goods and provide services, you need the ability to borrow money."

Aside from the growth prospects, emerging-market financials lack exposure to toxic assets, unlike those in the U.S. and other developed countries, Holderith added.

Far Flung

EFN spans 10 countries, with China most heavily weighted at 42% of assets. Brazil takes up 23% of the fund, followed by South Africa 10%, India 10%, Malaysia 5%, Turkey 3%, Poland 2%, Kuwait 2%, Jordan 2% and Hungary 1%.

The top holdings are Industrial & Commercial Bank of China with an 11% weighting, Itau Unibanco (NYSE:ITUB - News) 10%, China Life Insurance (NYSE:LFC - News) 10%, China Construction 9% and Banco Bradesco (NYSE:BBD - News) 7%.

"Emerging markets are likely to outperform established markets due to the fact that emerging markets tend to recover more quickly as global economies begin to recover from recessions," said Mike Turner, founder of TurnerTrends. "It remains to be seen if the financial components of emerging markets will recover with the same speed."

Other money managers specializing in ETFs dislike the fund's heavy concentration in China and the top three names.

"Although China's financial sector may appear healthy, I think the truth is that nonperforming loans will escalate uncomfortably in 2010," said Carl Delfeld, managing director of ChartwellETF.com.

Owing to the low trading volume in foreign financial ETFs, Gary Gordon, president of Pacific Park Financial, finds slicing emerging markets into sectors "gimmicky."

EFN will compete with global financial sector ETFs such as iShares S&P Global Financials (NYSEArca:IXG - News), SPDR S&P International Financial Sector (NYSEArca:IPF - News) and WisdomTree International Financials (NYSEArca:DRF - News).

These have returned 36% to 44% year to date vs. 21% for the U.S. financial sector as tracked by Financial Select Sector SPDR (NYSEArca:XLF - News).

In the past 12 months, XLF has declined 24% vs. -20% for DRF and -13% for IXG. The leader of the bunch, IPF, edged up 2% in the past 12 months.

EFN charges an expense ratio of 0.85%, which is high compared with its competitors' fees of 0.5% to 0.58%.

State Street Goes Preferred

State Street Global Advisors released Thursday another ETF for the "me-too" category: SPDR Wells Fargo Preferred Stock .

It will go head to head with iShares S&P U.S. Preferred Stock Index (NYSEArca:PFF - News), PowerShares Financial Preferred Portfolio (NYSEArca:PGF - News) and closed-end funds like BlackRock Preferred Income Strategies (NYSE:PSY - News), John Hancock Preferred Income (NYSE:HPS - News), Flaherty & Crumrine Preferred Income Fund (NYSE:PFD - News) and a few others.

PSK holds 160 stocks with a 90% weighting in financials. It has 6% in telecom and 4% in utilities. It lists a dividend yield of 8.4%.

PFF lists a 30-day SEC yield of 7.58% and 90 holdings. PGF yields 8.63% and has 39 holdings.

PFF and PGF are up 24% and 19% year to date. They rose the same amounts in the past 12 months.

The closed-end funds returned 24% to 53% year to date and -15% to 45% in the past 12 months.

"Preferred stocks have come back from the selling last year, and the valuations are at fair value," said Jim Farrish, founder of SectorExchange.com and Money Strategies Inc. "This would be more of a dividend play than a growth play currently."

Going For Quality

PSK offers a higher-quality portfolio, broader sector exposure and the lowest expense ratio -- 0.45% -- compared with its competitors, said Tom Anderson, head of strategy and research at SSgA.

Preferred shareholders usually do not have voting rights but they receive dividends that are paid before common stockholders.

"The pros of preferred stocks are that you get a higher dividend than with traditional equity and typically have preference over common shareholders in the event of bankruptcy," said Richard Romey, president of ETF Portfolio Solutions, which bought PFF in January.