In its latest semi-annual review, MSCI Global Standard Indices announced that it will add 11 Brazilian companies to the MSCI Emerging Markets Index at the end of November, along with seven Chinese companies (one Chinese company will be deleted). This benchmark underlies iShares‘ MSCI Emerging Markets Index Fund (EEM), the largest emerging markets ETF with a market capitalization of more than $35 billion.
“Brazil and China have been gaining a steady share of this marketplace segment, and MSCI is simply echoing the sentiment of many investors,” writes Riva Froymovich. According to the Wall Street Journal, Brazil has rallied the most on the MSCI so far in 2009, gaining 121% in dollar terms (as of Thursday), while China is up 62% year-to-date.
The Dow Jones Emerging Markets Titans Composite Index Fund (EEG) from Emerging Global Advisors was ahead of the curve on this trend, avoiding securities listed in borderline-developed economies such as South Korea, Taiwan, and Israel in favor of greater allocations towards BRIC economies. Since its inception, EEG has outperformed EEM by about 200 basis points, thanks in large part to strong performances from Brazilian and Chinese equity markets.
There are several emerging markets ETFs available to investors today, but these products are far from homogeneous, varying significantly in the level of exposure given to particular countries. Brazil and China account for about 50% of EEG’s holdings (as of September 30), compares to less than 25% for EEM. Vanguard’s Emerging Market ETF (VWO) and PowerShares‘ BLDRS Emerging Markets 50 ADR Index Fund (ADRE) fall between these two funds. ETFdb Pro members can read more about the drivers of emerging markets ETFs in our ETFdb Category Report (if you’re not a Pro member yet, you can sign up for a free trial or read more here).
| EEM | VWO | ADRD | EEG | |
|---|---|---|---|---|
| Brazil | 14.2% | 15.8% | 33.4% | 24.9% |
| China | 10.5% | 17.8% | 10.6% | 24.3% |
| As of September 30, 2009 | ||||
Disclosure: Long ADRE.
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