WisdomTree has launched the Emerging Markets ex-State-Owned Enterprises Fund (XSOE) on the NYSE Arca, which seeks to provide exposure to broad-based emerging markets stocks that exclude state-owned companies.
The Fund has a net expense ratio of 0.58%.
State-owned enterprises ("SOEs"), companies wholly or partially owned or operated by a government, are prevalent among emerging markets ("EM") countries such as Brazil, China and Russia. WisdomTree is offering the industry's first ETF for pure private sector EM exposure, eliminating SOEs.
Jeremy Schwartz, WisdomTree Director of Research, says: "Some investors believe that government ownership can negatively impact the operational aspects of a company because government-owned companies may be influenced by a broader set of interests, beyond generating profits for shareholders. XSOE was designed to broadly represent the investment opportunity set in the emerging markets outside of state-owned enterprises.1"
Over the past five years, MSCI Emerging Markets Index returns have lagged the US markets cumulatively by more than 80%.
Schwartz says: "One of the major reasons for this underperformance has been the lacklustre performance of the state-owned enterprises, which have dragged down broad emerging markets index returns. Traditional EM benchmarks have a quarter of their total exposure to SOEs. XSOE provides investors with an alternative beta EM exposure – ex-SOEs – that stands in stark contrast to established beta EM exposure."
Further, according to a recent article in The Economist, "Across the world, big, listed state-owned enterprises (SOEs) that were floated, or raised mountains of equity, between 2000 and 2010 have had a dismal time. Their share of global market capitalisation has shrunk from a peak of 22% in 2007 to 13% today."
The WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE): A New Form of EM Beta
By starting with a similar country universe as traditional market cap weighted benchmarks and limiting sector and company concentration, The WisdomTree Emerging Markets Ex-State-Owned Enterprises Index (EMXSOE) offers diversified exposure to EM beta while removing a potential risk from the asset class. The Index includes more than 500 securities with an aggregate market capitalisation in excess of USD5 trillion – a distinct, but broad-based alternative to MSCI EM exposures.