In yet another first for the U.S. ETF industry, State Street has rolled out the first fund to focus exclusively on small cap stocks in Asia Pacific economies. The New SPDR S&P Small Cap Emerging Asia Pacific ETF (GMFS) joins an existing SPDR ETF targeting large cap stocks in the region, as well as a growing number of international equity funds focusing on smaller stocks. The recently launched ETF is linked to the S&P Asia Pacific Emerging Under USD 2 Billion Index, a benchmark that consists of about 500 different holdings with an average market cap of approximately $460 million. By comparison, the SPDY S&P Emerging Asia Pacific ETF (GMF) has a weighted average market cap of more than $12 billion.
Under The Hood
The country allocation of GMFS is certainly worth noting, as this fund consists of a huge weighting towards a market that many investors consider to be developed. Taiwan stocks account for more than 40% of the GMFS portfolio at present, followed by China (21%), India (13%), and Malaysia (10%). The heavy tilt towards Taiwanese stocks also results in a portfolio with a heavy weighting in the tech sector; technology stocks make up about 23% of the underlying index, followed by financials (16%), industrials (15%), and consumer discrtionaries (15%). In addition to maintaining a deep portfolio with almost 500 individual holdings, GMFS is well balanced; no one name makes up more than about 0.8% of total assets, meaning that company-specific risk is limited.
GMFS joins a number of other single-country ETFs focusing on small cap stocks in emerging Asian economies, including ECNS (China) and SCIN (India). IndexIQ recently shuttered its small cap Taiwan ETF (TWON). Many investors have embraced small cap stocks as a more efficient way to gain access to the local economies which they represent. Whereas ETFs dominated by mega cap stocks tend to be more sensitive to the global economy–since their components derive revenue from around the globe–small cap ETFs consist of companies that rely more exclusively on the health of the local economy. In other words, the stocks in GMF generally count on markets around the globe to drive earnings; those found in GMFS are more likely to depend primarily on their home markets.
Flurry Of Launches
GMFS joins a number of other new ETFs to begin trading in the first few weeks of 2012. Recent additions include small cap Singapore and Hong Kong ETFs from iShares, more low volatility ETFs from PowerShares, breakeven inflation ETFs from ProShares, volatility response ETFs from Direxion, and an active long/short sector ETF from AdvisorShares.
Last year more than 300 new ETPs began trading; there are currently hundreds of additional ETFs that are in various stages of the approval and product development process.
Disclosure: No positions at time of writing.