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S&P Dow Jones Indices has unveiled the S&P Emerging Markets Domestic Demand Index, a new index designed to measure the performance of companies that capture a major engine of growth within the emerging markets – domestic demand.
To qualify for membership of the new index, a stock must be a publicly traded company domiciled and incorporated in the following emerging market countries: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Thailand, or Turkey, and be listed on the primary stock exchange of its respective country.
The index consists of common stocks listed on the primary exchanges of emerging markets, ADRs listed on US exchanges and GDRs listed on European exchanges. Constituents consist of 50 emerging market securities from the following sectors as classified according to the Global Industry Classification Standard (GICS): Consumer Staples, Consumer Discretionary, Telecommunication Services, Healthcare, and Utilities.
“The S&P Emerging Markets Domestic Demand Index consists of companies whose performance is tied to the domestic demand in their respective market,” says Vinit Srivastava, Senior Director at S&P Dow Jones Indices. “As most emerging market benchmarks do not capture this major engine of growth, the S&P Emerging Markets Domestic Demand Index will fill a considerable void for a representative benchmark in this space.”
The index uses a modified market capitalization weighting scheme. Index composition is reviewed annually in September. At each September rebalancing, a company in the qualifying universe is added to the index if it meets the following requirements: float-adjusted market capitalization of at least $100 million as of the September rebalancing reference date, average daily turnover of at least $8 million for the six months prior to the September rebalancing reference date, and has traded at least 90% of the total trading days in the six months leading up to the September rebalancing reference date.
Given the growing investor appetite for this theme, the index is likely to be of interest to a range of exchange-traded funds providers, who may look to license the index for the creation of ETFs.
As Robert Holderith, President of Emerging Global Advisors (EGA), sponsor of the EGShares range of ETFs, notes, “The domestic demand-driven sectors within emerging markets represent an attractive investment opportunity for a long-term, strategic allocation. In particular, the recent turmoil affecting emerging markets has offered an opportunity for investors to step back and consider their primary motivations for investing in emerging markets, which tend to be driven by the consumer growth story. Less mature sectors such as those driven by domestic demand provide access to this key theme.”
Investors eager to access this theme needn’t wait long! New York-based EGA is to transition its existing emerging markets domestic demand ETF, the EGShares Emerging Markets Domestic Demand ETF (EMDD), over to the new S&P Dow Jones index. Listed on the NYSE Arca, the ETF currently tracks the Indxx Emerging Markets Domestic Demand Index, an index created by lesser-known index provider Indxx. However, effective February 3, 2014, the fund will begin tracking the new S&P Dow Jones index.
The ETF has an expense ratio of 0.85%.