The EGShares Beyond BRICs ETF (BBRC), the first and largest emerging markets (EM) beyond BRICs exchange-traded fund (ETF), has surpassed USD250 million in assets after starting the year at USD22 million.
The fund’s performance has also been strong, up 11.26 per cent year-to-date as of 5 August, compared to 7.74 per cent for the MSCI Emerging Markets Index.
BBRC, which launched in August 2012, transitioned to the FTSE Beyond BRICs Index in October 2013, when it added 25 per cent exposure to frontier markets including Qatar, Oman, Kenya, Nigeria, Sri Lanka and Vietnam. The frontier market exposure is liquidity-ranked in order to address the liquidity challenges in frontier market equities. The remaining 75 per cent of the fund provides exposure to 12 emerging markets, excluding the BRICs, South Korea and Taiwan.
Smaller and less mature emerging market and frontier markets, those that operate "beyond the BRICs", have historically offered lower volatility and higher risk-adjusted returns than the whole of emerging markets.
Investing in these markets also may offer portfolio diversification potential as correlations between the US and BRIC equity markets have increased in recent years while those "beyond BRIC" markets remain relatively less correlated – an important consideration for asset allocation among investors.
“In our view, smaller or less mature emerging and frontier markets represent important growth within emerging markets, and they have offered stronger growth and diversification characteristics than mainstream emerging market indices today,” says Marten Hoekstra, chief executive of Emerging Global Advisors (EGA). “The inflows BBRC has seen this year demonstrate developing investor interest in targeting smaller, less mature economies.”
“Frontier markets have unique characteristics that make them very attractive to investors,” says Nicholas Smithie, chief investment strategist at EGA. “However, given liquidity challenges in the market, investors face a trade-off between a diversified frontier markets portfolio and daily liquidity. A liquidity-based strategy can provide investors with frontier exposure in a daily-traded vehicle." Through BBRC’s liquidity ranking and market capitalisation weighting of its 25 per cent frontier markets exposure, the fund may offer a solution to these challenges.”
