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Global X Funds, a New York-based provider of exchange-traded funds, has launched a new ETF providing investors with exposure to an exciting crop of less developed emerging and frontier market countries.
Listed on the NYSE Arca, the Global X Next Emerging & Frontier ETF (EMFM) delivers access to 35 countries exhibiting high growth potential and favourable demographical trends that may stimulate their rise as economic powers.
The fund is linked to the Solactive Next Emerging & Frontier Index which includes countries such as the Philippines, Nigeria, Chile, Panama, Pakistan and the Czech Republic. Countries included in the index represent 24% of the world’s population, but just 12% of the world’s gross domestic product and 8% of the world’s equity market cap.
Based on the young populations present in these countries, Global X expects these countries to generate more competitive labour forces that likely will become the world’s major supplier of low-cost labour. The firm also expects these countries to provide low correlations to both developed markets and each other, since they are driven by domestic-focused sectors including agriculture, construction and local banking. The index incorporates a capping mechanism to ensure diversification across sectors and individual countries.
Commenting on the launch, Bruno del Ama, chief executive officer of Global X Funds, said: “The Next Emerging & Frontier ETF offers exposure to specific economies that we expect will experience a long period of high growth rates, similar to what the BRIC nations experienced over the past 15 years. Investing in emerging markets continues to be an important strategy for portfolio diversification and growth, but investors must now look beyond more mature [emerging market] economies to regions with accelerating growth rates and expanding populations. This is because ‘traditional’ emerging market investments have begun to slow down and are too closely correlated with developed markets.”
Justin Young, Head of Capital Markets at Global X Funds, added: “While emerging and frontier markets may provide ample opportunity for growth, many individual countries and regions are concentrated in particular sectors and have only a handful of liquid names. The Next Emerging & Frontier ETF was designed specifically to address these challenges by providing broad exposure to 35 countries and utilizing caps and liquidity thresholds in an effort to ensure diversified, high quality holdings.”
The fund has a total annual fund operating expense of 0.58%.
The new fund complements Global X’s existing suite of frontier and targeted emerging market ETFs, which includes funds such as the Global X Colombia ETF (GXG), the Global X Nigeria Index ETF (NGE), the Global X Central Asia & Mongolia Index ETF (AZIA) and the Global X FTSE Andean 40 ETF (AND).
Global X Funds is not the first ETF provider to look beyond the BRICs and conventional emerging markets. In the US, iShares, Guggenheim and PowerShares all offer frontier markets ETFs, while Emerging Global Advisors offers a specific “beyond BRICs” ETF. SSgA SPDR is also imminently expected to unveil a product in this category. In Europe, Deutsche Asset & Wealth Management, RBS, SSgA SPDR and ComStage all offer relevant products in this space.