In a move to quench investors' thirst for growing opportunities in the emerging markets beyond the BRIC nations, Guggenheim has filed for a new ASEAN-focused ETF with the SEC.
The proposed fund in focus
As per the recent SEC filing, the proposed passively managed ETF will trade under the name of Guggenheim ASEAN Leaders ETF though the sponsor has not yet decided on the ticker symbol. Moreover, the index has not been specified, with no mention made of the expense ratio.
The proposed fund will seek to invest in the Association of Southeast Asian Nations, including the Philippines, Indonesia, Malaysia, and Singapore (read: Malaysia ETF: the Perfect Emerging Market Fund?).
The weightings of individual companies in the index will be in the range of 15% to a maximum of 35%, while sector weightings within each country are capped at 40%. The fund seeks to invest in common stock, American depositary receipts as well as global depositary receipts comprising the index.
Additionally, the financial services sector is expected to dominate the fund.
How might it fit in a portfolio?
This ETF, if approved, would give investors an opportunity to invest in the overlooked ASEAN bloc. The ASEAN bloc has a combined GDP of $2.2 trillion, having more than 10% of the world’s population.
Moreover, the surge in the middle class, a low-cost manufacturing sector and a highly productive labor force are expected to boost foreign direct investment.
The ASEAN Economic Community, which is expected to come into existence by the end of 2015, is anticipated to further eliminate tariffs and other trade barriers within the ASEAN region.
Obviously the economies of the Philippines, Indonesia, Malaysia and Singapore might be vulnerable to some internal and external economic influences and they are heavily dependant on exports to developed markets for growth (read: Are Singapore ETFs Back on Track?).
Can it succeed?
The ETF looks to face direct competition from Global X FTSE ASEAN 40 ETF (ASEA - ETF report). Launched in 2011, the fund seeks to tap 44 companies in the five ASEAN nations, namely, Indonesia, Philippines, Singapore, Malaysia and Thailand.
However, the fund hasn’t seen a huge level of interest as the ETF has only managed to amass assets worth less than $50 million. Moreover, volumes are a little dry at just 50,000 shares moving hands each day. The fund charges 65 bps in fees a year from investors and has delivered flat returns so far this year.
Guggenheim’s ASEAN ETF will also face competition from other emerging market ETFs that invest beyond the BRIC nations. Likely competition would come from SPDR MSCI Beyond BRIC ETF (EMBB - ETF report), which has recently been filed with the SEC, and also from EGShares Beyond BRICs ETF (BBRC - ETF report) (read: State Street Plans Ex-BRIC Emerging Market ETF).
EMBB focuses on 17 developing countries (excluding BRIC) including Chile, Colombia, the Czech Republic, Egypt, Hungary, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, South Africa, South Korea, Taiwan, Thailand and Turkey.
BBRC has accumulated $11.6 million since its debut last year (see: all the Emerging Market ETFs here). The fund holds 50 securities in its basket and charges 85 bps in fees a year from investors. The ETF is down nearly 2.55% year to date.
The ASEAN focused fund from Guggenheim, if approved, will give investors another alternative to play the emerging markets beyond BRIC. However, the lackluster volumes in the current ASEAN ETF suggest that the proposed ETF might find it a little difficult to garner assets, though only time will tell if this holds true for the Guggenheim product as well.
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