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iShares Debuts Emerging Markets ETFs

Michael Johnston

By Michael Johnston:

iShares added to its already robust lineup of emerging markets this week with two new regional products designed to deliver targeted exposure to companies in the developing world. The iShares MSCI Emerging Markets Latin America Index Fund (EEML) will target an index consisting of stocks in Brazil, Chile, Colombia, Mexico and Peru, while the iShares MSCI EMEA Emerging Markets EMEA Index Fund (NasdaqGM:EEME - News) will target emerging markets in Europe, the Middle East and Africa. Specifically, EEME will include allocations to eight markets: The Czech Republic, Egypt, Hungary, Morocco, Poland, Russia, South Africa and Turkey.

The new iShares ETFs will be primarily listed on the Nasdaq. iShares recently announced that it will be the first issuer to list ETFs on the BATS Exchange, with the company expected to list a lineup of international equity funds next week.

Under The Hood: EEME

EEME is the first ETF to offer exposure to the EMEA region, though this fund has a heavy tilt toward two of the component countries. South Africa represents about 44% of the underlying index while Russia accounts for another 30%. The remaining quarter of the portfolio is split across the other six countries that make up the index. Hungary and Egypt combine to account for only 3% of assets, so those two economies will have little impact on the bottom line performance.

From a sector perspective, EEME will feature tilts toward corners of the market that are common in emerging markets products. Energy stocks will make up about 28% of assets, followed by financials (24%) and materials (16%). In other words, those three sectors account for nearly 80% of assets. At the other end of the spectrum are healthcare and technology stocks; those two sector represent less than 2% of holdings. Consumer companies make up about 11% of the portfolio.

EEME will have roughly 130 individual holdings, which represents about 15% of the broad-based MSCI Emerging Markets Index that is linked to both [[EEM]] and [[VWO]]. EEME will actually be cheaper than EEM, charging just 0.49%. The average for the Emerging Markets ETFdb Category is 0.66% so EEME will be considerably cheaper than peer products (see EEME fact sheet).

Under The Hood: EEML

Country %
Brazil 64.8%
Mexico 20.3%
Chile 7.7%
Colombia 4.2%
U.S. 2.7%
Peru 0.2%
Source: iShares.com

Like many Latin America ETFs, EEML will be dominated by Brazilian and Mexican stocks. Those two countries account for almost 85% of total assets. The smallest allocations are to Peru and Colombia, which make up only about 5% of the portfolio ([[EPU]] and [[GXG]] offer “pure play” exposure to these two markets). In total EEML will have about 125 holdings. The largest individual allocations will go to Brazilian oil giant PetroBras (NYSE:PBR - News) and Mexican telecom firm America Movil (Other OTC:AMOVF.PK - News).

From a sector perspective, financials (22%), materials (21%), consumer staples (15%) and energy (15%) make up the largest weightings. With those four combining for about 75% of assets, technology and healthcare stocks are given relatively small weights (those two combined represent less than 3%). EEML will also charge an expense ratio of 0.49%. The average for the Latin America Equities ETFdb Category is 0.64%.

There are already a number of Latin American ETFs on the market, including the popular iShares S&P Latin America 40 Index Fund (NYSEArca:ILF - News). That fund, which consists of only 40 stocks, has almost $2 billion in assets. ILF features similar country and sector tilts as the new EEML. Brazil and Mexico account for more than 75% of the portfolio, and financials and materials companies are well represented (see EEML fact sheet).

Disclosure: No positions at time of writing.

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