Van Eck Plans Small Cap Indonesia ETF

by on September 8, 2011 | ETFs Mentioned:

Van Eck has filed details for what would be the first ETF to offer exposure to small cap Indonesian stocks, laying the groundwork for further expansion in the ETF industry. The recent SEC filing shed some light on the proposed Market Vectors Indonesia Small-Cap ETF, which would join a pair of other products offering exposure to the red hot emerging Asian economy.

According to the ETF Country Exposure Tool, there are a number of ETFs that offer exposure to Indonesian equities, including the popular Market Vectors Indonesia ETF (IDX). That ETF, which has about $700  million in assets, is dominated by large cap stocks and has a tilt towards the financial and material sectors. iShares also offers a “pure play” Indonesia ETF; the MSCI Indonesia Index Fund (EIDO) is similarly focused on large cap stocks with a hefty allocation to Indonesian banks [compare IDX and EIDO head to head].

Those biases are relatively common among international equity ETFs, particularly those that target emerging markets. In recent years, many investors have embraced small cap ETFs as more of a pure play on international markets. Whereas large caps tend to be multi-national firms that generate revenue around the world, small caps are more likely to be impacted by changes in local consumption. Moreover, large cap-heavy ETFs tend to be dominated by banks and energy companies, meaning that small cap funds can bring sector balance and diversification to a portfolio.

Both Indonesia ETFs have been among the top performers from the equity ETF universe so far in 2011, as the Asian economy has largely avoided the issues that have plagued other emerging markets [see What Slowdown? Indonesia ETFs Hold Their Ground In Global Crisis].

Small Cap ETFs

According to the ETF Screener Van Eck already offers a number of small cap international ETFs, including:

  • Brazil Small Cap ETF (BRF)
  • India Small Cap ETF (SCIF)
  • Latin America Small Cap ETF (LATM)
  • Russia Small Cap ETF (RSXJ)
  • Germany Small Cap ETF (GERJ)

There are a number of additional products that offer exposure to small cap stocks in emerging markets, including the broad-based EWX, two China small cap ETFs (ECNS, HAO), Mexico (MEXS), Taiwan (TWON), and Hong Kong (HKK).

No ticker symbols or expense ratio information for the small cap Indonesia product were included.

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Disclosure: No positions at time of writing, photo is courtesy of Gunawan Kartapranata.