Despite a rash of ETF closures at the end of 2011, many issuers are once again launching new products to the public in hopes of capturing more assets. These recently debuted products target a variety of sectors in a number of asset classes with funds in the bond and international equity spaces being the most heavily represented in this newest ETF wave (see Ten Best new ETFs of 2011). In this vein, iShares, the San Francisco-based market leader in the ETF industry, announced the launch of three new funds late last week, hoping to increase its lead in the international ETF space.
Below, we take a closer look at these three new launches and how they may fit into a well diversified portfolio for some investors. Each could give greater exposure to developed markets while allowing many to further segment their holdings in the space. In addition to looking at how the funds could be used by investors, we also briefly discuss some of the competition that they may face from other, more established funds in their respective sectors:
This new ETF looks to give investors exposure to the MSCI World Index, a benchmark of global companies in a variety of sectors around the world. Top holdings include American giants such as Exxon Mobil (XOM - Analyst Report), Apple (AAPL - Analyst Report) and IBM (IBM - Analyst Report) giving the fund a heavy tilt towards U.S. equities. Beyond American securities, British and Japanese companies each make up over 9% of assets while Canadian firms take up another 5.2% as well. In terms of the sector breakdown, financials take up 17.7% while a smattering of other sectors take up a double digit allocation as well, suggesting that the fund is well diversified from this perspective. In total, the fund has 1,487 components and charges investors just 24 basis points a year for its services (see Five Cheaper ETFs You Probably Overlooked).
This fund could be appropriate for investors seeking broad exposure to a variety of markets across country lines. The fund has a definite focus on large caps so it could also be ideal for those looking for low risk options but are still seeking equity exposure. Yet, unfortunately for iShares, URTH looks to face stiff competition from a number of products in the space. Arguably the biggest competitor is likely to be (ACWI - ETF report), another fund from iShares. This fund tracks the All Country World Index which has similar top holdings as URTH. The main difference is that ACWI has $2 billion in assets and includes emerging markets as well.
MSCI Singapore Small Cap Index Fund (EWSS - ETF report)
For investors seeking another way to play the dynamic Singaporean market, EWSS could be an interesting choice. The fund targets the MSCI Singapore Small Cap Index which gives investors access to the smallest securities in the nation—the bottom 14% of the equity market by market cap. In terms of sector exposure, EWSS is heavily concentrated in financials much like its large cap counterpart. In fact, financials take up 48.8% of assets while industrials (18.2%), and energy (6.2%) round out the top three. In total, the fund has 37 securities in its basket and charges investors 59 basis points a year in fees (also read Inside The Vietnam ETF).
EWSS could be an interesting choice for those seeking more exposure to Southeast Asia but are unsure of the prospects in nations such as Malaysia or Indonesia. The product also appears to have solid value characteristics—the underlying index has a P/E of 10.4 and P/B of 1.01—so it could be a lower risk play in the region that still has growth prospects. In terms of competition, there is nothing on the market in Southeast Asia that targets small caps at this time so it could have an easy road to gain assets. However, investors should note that (EWS - ETF report), the large cap version of this fund, could already be the go to destination for many in the country as both funds have similar sector breakdowns but EWS is more liquid and less expensive.
MSCI Hong Kong Small Cap Index Fund (EWHS - ETF report)
If an investor is looking to make a play on another city state in Asia, EWHS looks to be one of the only options out there. EWHS tracks the MSCI Hong Kong Small Cap Index which gives investors diversified exposure to the bottom 14% of the equity market capitalization in Hong Kong. Unlike its Singaporean counterpart, EWHS has heavy exposure to the consumer discretionary space as the fund puts close to 44% of its assets in this corner of the market. Beyond this tilt towards consumers, EWHS also sees double digit allocations to financials (18.5%) and industrials (12.2%) as well. Overall, EWHS has 44 securities in total in its basket and charges investors 59 basis points a year in fees.
This fund could be appropriate for investors seeking a new way to play the Hong Kong market as EWH has a very different holdings breakdown than its small cap counterpart. (EWH - ETF report) has a focus on financials (58.4%) and utilities (15.1%) although it also gives a double digit allocation to consumer firms as well. Beyond this, there are also a number of small cap China funds which could be more volatile, but offer better growth stories than their Hong Kong brethren. Additionally, IndexIQ, an issuer specializing in small cap and hedge fund ETFs, tried to launch a small cap Hong Kong fund just a little while ago but the fund failed to achieve a meaningful amount of assets in its heyday. Given the lack of support for this fund, it will be interesting to see if EWHS can buck the trend in the space (read Index IQ, Global X Announce ETF Closures).
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