Thanks to the end of the cheap money era, emerging market ETFs saw a massive outflow of funds last year. However, things are beginning to shape up well this year for the emerging market space.
Valuation concerns in some of the high flying sectors like technology and biotech have led investors to dump high growth stocks in search of cheaper equities (read: 3 Emerging Market ETFs Off to a Great Start in 2014).
And thanks to this search, investors are pouring a huge amount of money into emerging market ETFs, which are trading at quite attractive levels.
Issuers are also coming up with new product launches. Earlier in the year, ALPS launched Emerging Sector Dividend Dogs ETF (EDOG - ETF report) targeting the emerging market space. Meanwhile, EGShares, after launching three new funds targeting the emerging market bond space a few months earlier, has recently launched another ETF for emerging market exposure.
The new member of the EGShares fund family hit the market on April 23, 2014 and trades under the name of EGShares Blue Chip ETF under the symbol of BCHP (read: EGShares Launches 3 Targeted Bond ETFs).
BCHP in Focus
The fund seeks to offer exposure to the developing world via blue-chip companies that are based in the developed world by tracking the EGAI Developed Markets Blue Chip EM Access index.
The equally-weighted index measures the market performance of developed market companies that derive quality, meaningful and growing revenues from the emerging markets.
This focus results in the index holding a basket of 30 well-diversified companies. QUALCOMM Incorporated, Rio Tinto plc and Anheuser-Busch Inbev SA are the top three holdings, each having a 3.33% exposure in the fund.
However, as far as sector allocation is concerned, the fund is quite heavily weighted towards its top three sectors – Consumer Staples, Consumer Discretionary and Industrials – which together form roughly 57% of total fund allocation.
Considering country-wise allocation, United States takes the top spot having 36.7% allocation, followed by U.K. and Switzerland having 13.3% and 10% allocation respectively.
The fund has accumulated roughly $2 million and charges 60 basis points as fees (see all Broad Emerging Market ETFs here).
How does it fit in a portfolio?
For investors still having faith in the emerging market growth story, this fund can be a good choice to invest in. According to the issuer, “emerging market subsidiary operations have delivered roughly double the revenue and earnings growth of their multinational parents” in the past and as such this might be a good way to access the growing opportunities in the emerging market space.
Moreover, the fund is well diversified as far as individual stocks are concerned. However, investors should note that the product is a bit concentrated from both a sector and nation perspective, while expenses are reasonable.
While the fund looks to invest in the emerging market space via blue-chip companies based in the developed world, there are a handful of other products that invest in the emerging markets directly. Hence, it might be difficult for BCHP to build assets, though some who want a lower risk play on emerging nations might choose this fund for exposure.
The emerging market equities space is primararily dominated by two large players – Vanguard FTSE Emerging Markets ETF ((VWO - ETF report)) and iShares MSCI Emerging Markets ETF ((EEM - ETF report)) – with the funds managing a whopping $42.9 billion and $35.7 billion, respectively. While VWO charges far less than BCHP, EEM charges slightly higher fees of 67 basis points (read: India ETFs: Can the Surge Continue after Elections?).
There are a few other products as well such as iShares Core MSCI Emerging Markets ETF ((IEMG - ETF report)), WisdomTree Emerging Markets High-Yielding Equity Fund ((DEM - ETF report)) and Schwab Emerging Markets Equity ETF ((SCHE - ETF report)), which could pose threats to this newly launched fund by EGShares.
Though the fund’s idea of indirectly investing in the emerging market space by buying large cap companies based in the developed markets might help it to garner some more assets, it still looks to be a difficult fight in the increasingly crowded emerging market equity segment.
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