ComStage, the ETF business of Commerzbank, has rolled out the ComStage ETF S&P SMIT 40 Index TRN (E129), a new ETF based on the S&P SMIT 40 Index.
The fund has been listed on Deutsche Börse’s Xetra platform and has a total expense ratio of 0.60%.
The S&P SMIT 40 Index, which was launched by S&P Dow Jones Indices in October 2012, is designed to measure the performance of 40 leading companies from four important emerging markets: South Korea, Mexico, Indonesia and Turkey (SMITs).
The SMITs represent the four largest markets of the so-called “Next Eleven” (N-11), a concept developed by Goldman Sachs Asset Management.
The N-11 are, after the BRICs (Brazil, Russia, India and China), the next eleven countries recognised by Goldman Sachs as having the potential for strong long-term growth. They are: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam.
The performance of the index has been strong. On an annualised total return basis, the S&P SMIT 40 Index has achieved a return of 7.42% pa over the past five years compared to 0.64% pa for the S&P BRIC 40 Index, which measures the performance of 40 leading companies from the BRICs (see chart).
John Davies, Vice President of Global Exchange Traded Products Licensing at S&P Dow Jones Indices, said: “The S&P SMIT 40 Index is S&P Dow Jones Indices’ response to the growing investor interest in the SMIT countries. We are pleased that Commerzbank AG has licensed the index to serve as the basis for their ETF.”
Thomas Meyer zu Drewer, Managing Director and Head of ComStage, said: “Many emerging countries have displayed significant growth in their economic performance in the past decade. After the BRIC States, the next four largest markets are: South Korea, Mexico, Indonesia and Turkey – or ‘SMIT’ for short. These countries unite a major population growth coupled with a positive economic development.”
The S&P SMIT 40 Index employs a transparent, rules-based methodology. To be eligible for inclusion, stocks must have a float-adjusted market capitalisation above $1 billion and three-month average daily value traded above $5 million. The largest ten eligible stocks in each country based on float-adjusted market capitalisation are included in the index, and the four countries are equally-weighted to enhance geographic diversification.
The index is rebalanced once a year after the market close of the last business day of September. A mid-year rebalancing also occurs if one of the largest three eligible stocks within any of the countries is not in the index as of the last business day of February.
Currently, the Financials sector commands the largest weight with 36.4%. This is followed by Telecom Services with 15.0%, Consumer Discretionary with 12.4%, Information Technology with 10.9% and Materials with 10.1%. Major holdings include Samsung Electronics (South Korea), America Movil (Meixco), Turkiye Garanti Bankasi (Turkey), Akbank (Turkey) and Astra International (Indonesia).
The fund could represent an interesting core emerging markets portfolio holding, which could then be tactically supplemented with country-specific EM ETFs to tilt the portfolio towards desired markets.