At the end of June 2009 there were ETFs providing exposure to Emerging Market banchmarks, assets of US$116.0 Bn ….
with 532 listings from 61 providers on 33 exchanges. Etf Aum has increased by 59.1$ while the MSCI Emerging Markets Index is up 34.3$ YTD in US dollar terms.
ETFs providing exposure to broad EM benchmarks are the most popular with 40.8$ of assets followed by ETFs covering Chinese country indices with 23.0$ of the assets.
YTD 35 new etfs were launched around the world providing exposure to emerging market benchmarks.
iShares is the largest provider of Emerging Market ETFs in terms of both number of products, 50, and AUM of us$73.7 bn, reflecting 63.5$ market share; Vanguard is second with 1 product and us$9.5 bn, a 8.2$ market share.
Lyxor Asset Management is third with 23 products and assets of us$4.2 bn and a 4.0$ market share.
Emerging Markets took the performance lead during the first half of 2009, Morgan’s Stanley Capital International (MSCI) Emerging Markets index, a benchmark of equity market performance in 22 emerging economies, rose 34.3$ in US dollar terms, as global markets recovered from multi-year lows.
The MSCI world benchmark of equity performance in 23 developed market country by contrast is up only 4.8$ year to date in US dollar terms. among developed economies, MSCI Hong Kong posted a gain of 32.6$, MSCI Singapore was up 29.5$ and MSCI Norway was up 26.1$ all in us dollar terms.
Signs of improving economic data encouraged investors to shift their focus to riskier assets. Many investors felt that emerging markets would lead a market rebound. the top three performing EM countries YTD in US dollar terms were MSCI India up 56.6$, MSCI Brazil up 55.8$ and MSCI Indonesia up 55.2$ in US dollar terms.
The MSCI All Country World Index (ACWI) is made up of 87.9$ developed equities and 12.1$ emerging market equities, so investors running global equity portfolios against the index will form a natural allocation to Emerging Markets.
According to data from EPFR global net inflows to emerging market equity funds totalled us$26.5 billion in the second quarter of 2009, surpassing the previous record in the fourth quarter of 2007. For investors wishing to implement exposure to the Emerging Markets there are a number of alternative investment vehicles which can be used such as certificates, swaps, futures, structured products, active funds and ETFs.
In the current market turmoil many investors have become concerned about counterparty risk, transparency, liquidity, product structure, cost, the use of derivatives and structured products.
as a result, many investors believe ETFs offer significant advantages due to their fund structure, trading flexibility, diversification, relatively low cost, tax efficiency primarily for US investors, and transparency.
Emerging Markets often have restrictions on direct foreign investment and immature (or non existent) stock loan and futures markets. investors interested in gaining exposure to the underlying index constituents (single stocks) in many emerging market countries directly on the local exchange are required to have a foreign entity ID due to Foreign Ownership Limitations.
there are only a limited number of futures contracts for emerging market countries and investors could be required to setup local trading accounts in the respective country and in local currency. Futures positions involve roll maintenance and the consideration of roll costs over longer time horizons.
As with any investment, ETFs have risks including the general risks associated with investing in securities, potential tracking error, nonconcurrent trading hours between the ETF exchange listing and the underlying basket of equities. ETFs investing in emerging and international equity markets also have political, economic and currency risks.
Using ETFs for Emerging Market exposure can simplify the trading of emerging market equities in multiple markets and in multiple currencies into a single security.
Source from : ETF Landscape – Emerging Markets ETFs Industry Review from Barclays Global Investors
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