First Emerging Markets Financials ETF Launches

by on September 17, 2009 | ETFs Mentioned:

Emerging Global Advisors on Wednesday launched the Dow Jones Emerging Markets Financials Titans Index Fund (EFN), the first exchange-traded fund to offer targeted exposure to banks, insurance companies, and financial institutions in emerging markets. EFN brings Emerging Global Advisors’ line of products to four, with the other three including:

  • Dow Jones Emerging Markets Metals & Mining Titans Index Fund (EMT): Invests in emerging markets companies engaged in diversified metals and mining, gold, steel, and aluminum industries.
  • Dow Jones Emerging Markets Composite Titans Index Fund (EEG): Holds 100 emerging markets companies deemed to be leading companies in each of the 10 industrial sectors.
  • Dow Jones Emerging Markets Energy Titans Index Fund (EEO): Invests in emerging markets companies engaged in the development and production of crude oil and natural gas and firms that provide drilling and other energy-related services.

The new ETF from Emerging Global Advisors will track the performance of the 3o  largest financial companies in a 10-country region (including China, Brazil, India, South Africa, Malaysia, Turkey, Poland, Jordan, Kuwait, and Hungary).

There are an abundance of emerging markets available (see a full list), and dozens of sector-specific funds within the U.S. market. But Emerging Global Advisors is pioneering a new corner of the ETF industry; offering sector-specific ETFs invested in equities outside of the U.S.

PowerShares (PXR) and iShares (EMIF) have also dabbled in this space, with each offering an emerging markets infrastructure fund (the two aren’t as similar as one might imagine)

The potential for these sector-specific funds is huge. Our ETF Screener shows that there are about 380 equity ETFs holding U.S. companies and only about 20 funds offering exposure to emerging markets. Given that the BRIC countries alone represent about 13% of the world’s economy (making them now more than half the size of the U.S. in this regard), the relative number of ETF offerings is surprisingly low. (Click here to sign up for our free Daily ETF Newsletter and stay up to date on all new ETF offerings.)

Investors seem to agree. While EGA is a relatively small ETF issuer (about $20 million in AUM according to the latest NSX data), the company is experiencing some major growth. August cash inflows were more than 25% of July assets, a significant month-over-month jump.

Obviously, stock markets in emerging economies are not nearly as efficient as those in developed nations, a fact that no doubt accounts for part of the discrepancy. But within the emerging markets group, there are a sufficient number of relatively large companies that trade frequently. Holdings of EFN, for example, have average and median market capitalizations of more than $20 billion and $6.5 billion, respectively.

The timing for the launch of an emerging markets financials ETF is perfect. Earlier this week, Nobel Prize-winning economist Joseph Stiglitz said the U.S. has failed to fix the underlying problems of its banking system and that now “the problems are worse than they were in 2007 before the crisis.” The volatility that many investors associate with emerging markets is now a hallmark of U.S. equity markets (the financial sector in particular), meaning that investments in ETFs such as EFN might be closer to a “safe haven” that many would imagine.

The launch of the latest ETF from EGA is a good opportunity to remind readers about the upcoming Art of Indexing Summit in New York City. Richard Kang, EGA’s chief investment officer, is scheduled to participate in a panel on sector ETFs, and is sure to have some interesting insights on these new ETFs. If you’re planning on attending the summit (you can sign up here), please let me know if you’d like to meet up to talk ETFs!

Disclosure: No positions at time of writing.