State Street Launches 'Beyond BRIC' Emerging Market ETF - ETF News And Commentary

Despite the threat of the taper and how this might impact foreign markets, a number of ETF providers have launched new funds with a foreign focus in the fourth quarter. This trend continues into December with the newest fund from ETF giant State Street hitting the markets.

This new product looks to focus in on emerging markets, which have, despite worries over reduced QE, managed to do a little better in terms of performance as of late. However, unlike many other emerging market ETFs, this new product will not hold any of the major BRIC nations (Brazil, Russia, India, and China), giving investors more targeted exposure to the smaller and often overlooked emerging economies around the globe (also read Emerging Market Dividend Growth ETF Hits the Market).

With this approach the newly-listed 

SPDR MSCI EM Beyond BRIC ETF—EMBB

 could be an interesting choice for investors seeking a different type of international exposure. This could be especially true for those seeking the next round of growth in emerging markets, and for those who believe that the easy gains have been had in the BRIC markets and that other nations are now poised to have their time in the sun.

EMBB in Focus

The new fund looks to follow the MSCI EM Beyond BRIC Index which is comprised of the constituent companies in the MSCI Emerging Markets Index, except for those that are in the MSCI BRIC Index. This produces a fund that has about 250 holdings in its basket and has a gross expense ratio of 55 basis points a year.

In terms of the countries included in the fund, South Korea, Taiwan, South Africa, and Mexico all receive at least 13%, but none receive more than 15.3% of the total. Rounding out the rest of the top seven includes Malaysia, Thailand and Indonesia, suggesting the fund has solid diversification, but is focused on many of the big emerging markets just under the BRIC-tier (read Emerging Market ETFs: How to Pick Winners).

The portfolio is a bit skewed towards financials, as these make up 28% of the total assets, followed by technology at 13.5% of the total. Materials, consumer staples, and consumer discretionary round out the rest of the top five and all of these receive at least 9.8% of the total as well.

How does it fit in a portfolio?

This ETF could be an interesting pick for those who believe that the best days for the BRICs are over, and that other emerging markets are ready to lead the space. And with some of the troubles that we have seen in BRICs lately—especially in Brazil and India—there is plenty of reason to believe that this might be the case (see all the Broad Emerging Market ETFs here).

On the other hand, investors should note that the markets in this ETF aren’t exactly overlooked, as its biggest components tend to receive large allocations in many other emerging market funds anyway. Furthermore, many argue that Taiwan and South Korea aren’t really emerging markets anymore either, so it is debatable how much of a ‘growth’ fund this will be for investors.

Competition and Bottom Line

The emerging market ETF world is huge with a number of popular funds such as 

EEM

 and 

VWO

 dominating the space.  The ‘Beyond BRIC’ market is relatively sparse though, but there are a few competitors out there. In particular, the 

EG Shares Beyond BRICs ETF (BBRC)

 could be a tough foe.

This fund also excludes BRIC companies from its portfolio, giving big weights to Mexico, South Africa, Malaysia, and Qatar. Financials are a big holding here too at 33.8%, while telecoms and staples round out the rest of the top three and make up, respectively, 18.9% and 12.2% of the fund (also read Emerging Global Changes Index for Beyond BRICs ETF).

While this fund represents a novel departure from some of the other emerging market funds out there, it hasn’t exactly caught on with investors. The product has less than $20 million in AUM, a fraction of many of the other products in the emerging market space.

Given this, it may be difficult for State Street to build up assets in the beginning with its new ETF. The fund is going to face some stiff competition, but if the BRICs continue to falter, we may see some interest in the ex-BRIC ETF market-- such as with this new fund-- in short order.

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EGS-BEYOND BRIC (BBRC): ETF Research Reports

ISHARS-EMG MKT (EEM): ETF Research Reports

VANGD-FTSE EM (VWO): ETF Research Reports

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