S&P Dow Jones debuts S&P SMIT 40 Index as BRICs lose form

Oct 23rd, 2012 | By | Category: ETF and Index News

S&P Dow Jones Indices has announced the launch of the S&P SMIT 40 Index, an index designed to measure the performance of 40 leading companies from four emerging markets: South Korea, Mexico, Indonesia and Turkey (“SMITs”).

S&P Dow Jones debuts S&P SMIT 40 Index as BRICs lose form

The S&P SMIT 40 Index tracks 40 leading companies from the ‘SMITs’: South Korea, Mexico, Indonesia and Turkey (pictured).

The S&P SMIT 40 Index represents the four largest markets of the so-called Next Eleven (N-11).

The N-11, a concept developed by Goldman Sachs Asset Management (GSAM), are the eleven countries (Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam) recognised by GSAM as having the potential for strong long-term growth (in addition to the BRIC countries). The BRIC countries are Brazil, Russia, India and China.

The index is designed to be representative of these four equity markets yet be efficient to replicate in order to support financial products such as exchange-traded funds (ETFs).

Michael Orzano, associate director of global equity indices at S&P Dow Jones Indices, commented: “Investors’ interest in emerging market investments is beginning to mature, and they are looking for new ways to tap into this asset class. Interest in the BRICs has, to a certain extent, tapered off recently as their economic growth has cooled and stock markets have underperformed. In the meantime, interest in the SMIT countries appears to be continuing to grow across Europe and in the States.” [EGShares goes ‘beyond BRICs’ with launch of two specialist emerging market ETFs].

Interest in the SMITs has grown as a consequence of a period of strong stock market performance, during which returns in the SMIT countries have surpassed those of the BRIC countries. Indeed, the S&P SMIT 40 Index has trumped the S&P BRIC 40 Index over various time periods, including three months, one year, three years, and five years. Year to date, the S&P SMIT 40 Index has outperformed the S&P BRIC 40 Index by 11.9%.

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 top five index weights are Samsung Electronics with 10.4%, America Movil with 10.1%, Turkiye Garanti Bankasi with 5.7%, Astra International with 5.5%, and Akbank with 4.6%. The top ten constituents account for 53.4% of the index. At the sector level, Financials have the largest weight with 33.2%, followed by Telecommunication Services with 16.3%, Consumer Discretionary with 14.3%, Information Technology with 11.4%, and Materials with 10.2%.

The index has been licensed by UniCredit to serve as the basis for structured products to be issued in Germany and Austria. The index will likely be of interest to ETF providers, as investors continue to seek out alternative emerging market growth opportunities to the widely held BRICs.

Although no SMIT-dedicated ETF currently exists, for immediate exposure investors could create a portfolio using a selection of the following London-listed (except where stated) ETFs:

South Korea

HSBC MSCI Korea ETF (HKOD)
iShares MSCI Korea ETF (IKOR)
CS ETF (IE) on MSCI Korea (CKR1)
db X-trackers MSCI Korea TRN Index ETF (XKS2)

Mexico

HSBC MSCI Mexico Capped ETF (HMEX)
iShares MSCI Mexico IMI Capped ETF (SMEX)
CS ETF (IE) on MSCI Mexico Capped (SMX1)
db X-trackers MSCI Mexico TRN Index ETF (XMEX)

Indonesia

HSBC MSCI Indonesia ETF (HIDR)
db X-trackers MSCI Indonesia TRN Index ETF (XMID)
Market Vectors Indonesia Index ETF (IDX) 
(NYSE Arca)
Market Vectors Indonesia Small-Cap ETF (IDXJ)
(NYSE Arca)

Turkey

HSBC MSCI Turkey ETF (HTRD)
iShares MSCI Turkey ETF (ITKY)
UBS-ETF MSCI Turkey (MATR)
Lyxor ETF DJ Turkey Titans 20 (TUR)
(Euronext)
RBS Market Access Dow Jones Turkey Titans 20 Index ETF (M9SE) (Xetra)

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