First Trust Advisors has launched the (EMDM ), a new fund that focuses on companies in emerging market countries where political rights and civil liberties are highly regarded. EMDM seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an equity index called the Bloomberg Emerging Market Democracies Index.
The majority of global economic growth is expected to occur outside of the U.S. in the next few years, particularly in emerging markets, according to data from the International Monetary Fund. Traditional emerging market benchmarks may have significant weight in countries whose governmental policies and living conditions may not reflect democratic views toward individual and collective freedoms.
“Concerns about the rule of law, political rights, and civil liberties have led many investors to avoid allocating to emerging markets,” said Ryan Issakainen, senior vice president and ETF strategist at First Trust.
To be included in the index, securities must come from countries designated by nonprofit democracy advocacy group Freedom House as an Electoral Democracy. This designation reflects that a democratic electoral system requires not only fair balloting procedures and basic political competition, but also some respect for the rule of law and civil liberties, such as freedom of assembly.
“By screening out countries that are not considered Electoral Democracies, we believe this ETF addresses many such concerns, while also providing exposure to the robust long-term growth potential of emerging markets stocks,” Issakainen said.
Dave Gedeon, head of index product at Bloomberg Index Services Limited, added: "Bringing new ideas to market is a principal focus area for Bloomberg Indices as we recognize the opportunity for unique benchmarks that address specific interests, such as values-based investing. We’re excited to see First Trust take one of these ideas forward to investors and launch an ETF with the Bloomberg Emerging Market Democracies Index.”
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