Manila, Philippines - Emerging Global Advisors (EGA) is launching two new exchange traded funds to provide investors with the ability to further focus their emerging market allocation.
The EGShares Beyond BRICs (BBRC) seeks to outperform larger market funds by focusing on 15 less mature markets including: Chile, Colombia, Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Morocco, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey.
The EGShares Emerging Domestic Demand (EMDD) invests in five sectors believed critical by organic growth within the markets including: consumer staples, consumer discretionary, telecom, utilities and health care.
There was a time when these markets promised outsized returns and growth. Now, they account for four of the ten largest economies in the world by GDP and growth is slowing.
The explosive growth seen in the BRIC countries over the first half of the last decade has leveled off to a more modest rate. Brazil will find it difficult to beat two percent this year and many are still talking of a hard landing in China. India’s central bank has been unable to pick the economy out of its stall without threatening double-digit inflation.
Consumers in the emerging world meanwhile are projected to increase annual spending from $7 trillion to $20 trillion in the 10 years to 2020. The IMF expects the emerging world to expand by 5.6% percent this year and almost six percent in 2013 against growth of two percent or less in the United States, Europe and Japan.
Beyond the overweight in the BRIC countries, the MSCI Emerging Markets Index carries 57 percent of its holdings in sectors more closely related to global growth than emerging market domestic strength.
Companies in sectors like financials, energy, materials and industrials make up the majority of the index while domestic plays like consumer goods, telecommunication, utilities and healthcare make up less than a third of assets.
Population growth, a key input to economic growth, is forecast to slow to a cumulative growth rate of 13 percent over the next 18 years in the BRIC nations while growth in the 15 Beyond BRIC countries could exceed 19 percent over the same period.
The Beyond BRICs fund includes all 10 sectors but will exclude relatively-developed countries found in other EM funds like Brazil, Russia, India, China, South Korea and Taiwan.
The fund will track the Indxx Beyond BRICs Index, a free-float, market-cap weighted index. The index has a trailing price-earnings of 17.5 times and a 3.25 percent dividend yield. Companies in the index are fairly large with a median market cap of $15.9 billion.