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EMCR: EGShares Brings New Approach To Emerging Market ETFs

EMCR: EGShares Brings New Approach To Emerging Market ETFsEmerging Global Advisors launched the EGShares Emerging Markets CORE (NYSEARCA:EMCR) on October 16, 2012.  The new ETF’s underlying index, the S&P Emerging Markets Core Index, uses a modified equally-weighted approach and a rules-based methodology.  It attempts to measure the performance of companies that are representative of all industries domiciled in emerging market countries.

With EMCR, Emerging Global Advisors hopes to provide investors with a more diversified solution to emerging markets investing than traditional benchmark funds.  According to the press release (pdf), the underlying index “employs a rigorous methodology designed to reduce exposure to more advanced economies and avoid the industry and country concentrations which are typical of market-capitalization weighted emerging market benchmark indices.”

Country allocations are capped, and the current largest exposures include China 15.0%, South Africa 15.0%, India 15.0%, Brazil 10.0%, Russia 8.8%, Chile 7.5%, Malaysia 7.5%, and Mexico 7.5%.

Sector representation is Consumer Staples 17.5%, Consumer Discretionary 17.4%, Financials 16.3%, Industrials 10.3%, Utilities 7.2%, Technology 6.8%, Energy 6.8%, Health Care 6.3%, Materials 6.3%, and Telecommunication 5.3%.

The methodology used by EMCR allows up to 116 holdings but is currently at 108.  The multi-tier equal-weighting methodology currently places most of the holdings at a nominal allocation of 1.25% each.  The complete list of holdings and current weightings can be found here.

EMCR’s expense ratio is capped at 0.70%, and additional information is in the overview, fact sheet (pdf), and prospectus (pdf).

Analysis/Opinion: EMCR is an interesting product and manages to differentiate itself from the other 25+ diversified emerging market ETFs in the ETF Field Guide.  EMCR uses the IMF’s country classification system rather than the MSCI or the FTSE methodologies employed by the most popular emerging market funds.  Therefore, EMCR’s country allocations exclude both Taiwan and South Korea.  Investors building a global equity portfolio will need to get their exposure to those two countries via other ETFs.  Emerging Global Advisors provides additional details about the underlying methodology and its perceived benefits in EMCR: A More Diversified Emerging Market Core Holding (pdf), a 29-page presentation.

The majority of the EGShares product line is currently on ETF Deathwatch.  This new ETF has the potential to escape that fate, but it will need both performance and investor awareness to do so.

This article was originally written by Ron Rowland, and posted on InvestWithAnEdge.

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