Emerging Global Advisors, under its EGShares brand name, is the only ETF provider that focuses exclusively on emerging market products. The firm has launched several specialized products targeting specific sectors across various nations to become one of the biggest players in the developing nation ETF space.
This includes the EGShares Beyond BRICs ETF (BBRC), which offers up targeted exposure to comapnies in developing nations besides those in Brazil, Russia, India, and China.
However, the product has failed to garner a substantial level of investors’ interest since its debut more than a year ago. The fund has amassed only $11.5 million in AUM while sees light volume of under 8,000 shares per day on average. The ETF is down nearly 2% in the year-to-date period (read: 3 Biggest ETF Winners from the 3rd Quarter).
This is because emerging markets were depressed in the first eight months of the year on growth slowdowns and capital flight. Given this, and a desire to focus on smaller markets in the developing world, BBRC has undergone an index change though the ticker symbol remains unchanged. Earlier this month, the ETF also cut its expense ratio from 0.85% to 0.58%.
Index Change and New Holdings
The ETF now seeks to track the FTSE Beyond BRICs Index instead of Indxx Beyond BRICs Index, suggesting a big shift in the exposure profile. The new index expands BBRC exposure to frontier markets like Qatar, Nigeria and United Arab Emirates for the first time and increases fund holdings from 50 to 90 (read: Why Frontier Markets ETFs are Still Attractive).
This change is especially important given that the FTSE Beyond BRICs Index provides 75% exposure to emerging markets excluding Brazil, Russia, India, China, South Korea and Taiwan, and 25% to frontier markets.
Holding 90 securities in its basket, the fund no doubt offers more diversification across individuals and nations than before. Each security holds less than 4% of BBRC.
Mexican and South African firms get the largest allocation with 16% each, closely followed by Malaysia (12.3%) and Qatar (10.3%). Other countries make up a nice mix of the portfolio (see: all the Broad Emerging Market ETFs here).
In terms of a sector look, the product is skewed toward financials with one-third share while telecommunication services and consumer staples round out the next two spots with double-digit exposure.
Previously, the fund had a large concentration in South Africa with nearly 22% share and the top firm – Naspers – had over 6%. The product was also heavy on financials and telecom with almost the same allocation as that of FTSE index. However, the ETF still maintained its focus on large cap exposure with the new index.
Clearly, there are some differences between the old and new benchmarks, suggesting modest change for many investors. The larger number of securities and greater country exposure seem to be the real key. Nevertheless, the old and new indexes are quite comparable in terms of sector and individual companies.
The ETF remains an interesting option for investors seeking wide exposure in the global ex-developed market. The product would allow investors to tap the still beaten down emerging economies that are showing clear signs of a quick recovery (read: Emerging Market ETFs: How to Pick Winners?).
Further, valuations of these nations are quite favorable at the current levels and growth rates are still high when compared to many of the developed nations, so this could be an interesting pick going forward.
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