State Street Global Advisors, the fund sponsor behind the SPDR ETFs, today rolled out two equities ETFs, one that serves up a subset of the two largest funds in the emerging markets space, while the other is a blend of developed and emerging stocks.
The SPDR MSCI EM 50 ETF (NYSEArca:EMFT - News) will track an MSCI index that picks the 50 largest names, by market capitalization, in the MSCI Emerging Markets Index, the same benchmark underlying the iShares MSCI Emerging Markets Index Fund (NYSEArca:EEM - News) and the Vanguard MSCI Emerging Markets ETF (NYSEArca:VWO - News). EMFT has an annual expense ratio of 0.50 percent.
The emerging-blended portfolio, the SPDR MSCI ACWI IMI ETF (NYSEArca:ACIM - News), will own securities from both developed and emerging economies in a mix that picks the largest names from a broad pool of global equities that canvass almost the entire investable universe. ACIM has an annual expense ratio of 0.25 percent.
On the surface, the new funds can be construed as me-too strategies from a company that already has a handful of emerging market- and internationally focused ETFs. For example, its broad-based SPDR S'P Emerging Markets ETF (NYSEArca:GMM - News) has attracted $181 million, and its $453 million SPDR MSCI ACWI ex-U.S. ETF (NYSEArca:CWI - News) focuses on developing-world stocks outside of the United States.
Still, by the looks of it, the two new ETFs are less expensive than State Street’s existing funds and also focus on the importance of liquidity, which can keep bid/ask spreads tight and minimize trading costs.
Zooming In On Liquidity
Both EMFT and ACIM apply liquidity screens that look at what the company calls annualized traded value ratios—trading volume relative to the company’s float-adjusted market capitalization—to ensure that the fund is investing only in the largest and most liquid names.
EMFT will own 50 securities from as many as 21 countries. The fund includes exposure to Korea, a country excluded from SSgA’s GMM, which also happens to carry a heavier focus on BRIC countries—Brazil, Russia, India and China.
GMM’s $181 million in assets is a far cry from its competitors EEM and VWO, which boast $37 billion and $49 billion in assets, respectively. What’s more, GMM is not even the costliest of the three, at 0.59 percent. That distinction goes to iShares’ EEM’s 0.67 percent price tag. VWO costs 0.22 percent.
Another interesting nugget is that EMFT will obtain exposure to four of its 21 countries—Brazil, India, Mexico and Russia—via depositary receipts rather than local stocks, the company said in the prospectus it filed with U.S. regulators prior to launch.
The distinction could mean better liquidity in the exposure to those four markets because local emerging stocks can be more difficult to access and less liquid. But it could also lead to bigger tracking errors.
ACIM, meanwhile, tracks an index that consists of nearly 9,000 securities across 45 countries, roughly half of which are emerging economies. It’s rebalanced quarterly.
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