ETF issuer WisdomTree has launched the WisdomTree Emerging Markets ex-State-Owned Enterprises ESG Screened UCITS ETF (XSOE).
Listed on the London Stock Exchange, Börse Xetra and Borsa Italiana, XSOE seeks to track the performance of the WisdomTree Emerging Markets ex-State-Owned Enterprises ESG Screened Index, before fees and expenses, and has a total expense ratio of 0.32 per cent.
The Index, live since 2014, is designed to track the performance of emerging markets stocks that are not state-owned enterprises (SOEs). WisdomTree defines SOEs as having government ownership of more than 20 per cent of outstanding shares. The Index also seeks to exclude companies from the eligible investment universe based on environmental, social and governance (ESG) criteria, including companies involved in controversial weapons, tobacco, thermal coal activities or in breach of United Nations Global Compact (UNGC) guidelines.
WisdomTree is now providing European investors with access to XSOE, already a successful USD4.8 billion strategy in the US, originally launched on the NYSE Arca in 2014.
WisdomTree Emerging Markets ex-State-Owned Enterprises ESG Screened UCITS ETF will form part of WisdomTree’s USD5.8 billion range of ex-State-Owned Enterprises strategies.
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.
Aneeka Gupta, Director, Research, WisdomTree says: “Over time, government influence on SOEs can lead to quite large but fairly inefficient businesses. This influence can stagnate the long-term growth potential of these companies in their respective emerging markets (EM) economies. A large portion of existing emerging market indices are made up of SOEs increasing the risk investors are taking with their EM exposure. SOEs tend to be found in the old economy sectors and are generally less dynamic and innovative than companies in thriving new economy sectors. We anticipate EM growth to come from the innovative corners of the market and companies displaying strong fundamentals – two areas non-SOEs in emerging markets have a clear advantage.”
XSOE not only offers a distinct EM exposure by avoiding state owned enterprises and having an ESG screen, but it also has an overweight to ‘new economy’ sectors like Information Technology, Consumer Discretionary and Communication Services. New economy sectors have been among the key drivers of broad EM returns and overall growth of the market as some of the more traditional, ‘old economy’ sectors, such as Energy and Financials, have lost market share and continue to be the largest sectors of SOEs.
Since 31 December 2007, EM non-SOEs have significantly outperformed SOEs by 93.85 per cent. Emerging markets staged a strong recovery following the market crash in 2020. During this period Non-State-Owned companies outperformed their counterparts by over 28.7 per cent. Conditions currently supportive for potential investment in emerging markets include tailwinds such as a weaker US dollar, rising inflation, attractive valuations and higher commodity prices.
Alexis Marinof, Head of Europe, WisdomTree, says: “XSOE is the first of its kind in Europe, offering targeted exposure to emerging market companies that have less than 20 per cent government ownership. This represents the latest example of WisdomTree’s focus on delivering unique exposures, as we continue to build on our differentiated and innovative product range. As with all of our UCITS equity ETFs tracking WisdomTree proprietary indices we’ve added an ESG screen to XSOE. We believe this will increase the appeal of XSOE, an already successful strategy in the US, among European investors who are increasingly focused on ESG.”