WisdomTree launches emerging markets consumer growth ETF

Oct 7th, 2013 | By | Category: Equities

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WisdomTree, a US-based provider of exchange-traded funds (ETFs), has announced the launch of the WisdomTree Emerging Markets Consumer Growth ETF (EMCG).

WisdomTree launches emerging markets consumer growth ETF

The WisdomTree Emerging Markets Consumer Growth ETF seeks to help investors capitalise on emerging market consumer growth trends, while at the same time maintaining a sensitivity to valuation.

The fund, which has been listed on the Nasdaq Stock Market, is linked to the WisdomTree Emerging Markets Consumer Growth Index, a fundamentally weighted index that consists of stocks that best exemplify growth trends in emerging market consumers and their local economies.

The index is composed of the 250 companies (150 companies from the consumer sectors and 100 from the non-consumer sectors) from the eligible universe with the highest combined ranking of growth, quality, and valuation factors.

The growth factor ranking is based on long-term earnings growth expectations, the quality factor ranking is based on three-year historical averages for return on equity and return on assets, and the valuation factor is based on the earnings yield.

Companies are weighted in the index based on their annual net income, subject to a single stock cap of 5%, a country cap of 25%, and an allocation split of 60% to consumer sectors and 40% to other sectors.

The universe of eligible companies begins with firms incorporated within one of the following 17 emerging market nations: Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Philippines, Poland, Russia, South Africa, Taiwan, Thailand or Turkey. Firms must then have a market capitalisation of at least $200 million, have generated at least $5 million in net income over their latest fiscal year and have a price-to-earnings ratio of at least two.

Commenting on the launch, Jeremy Schwartz, WisdomTree Director of Research, said: “One of the major themes we believe will drive much of the global economy over the coming years is the potential growth from the emerging market consumers. Despite short-term noise in the markets this year, the strong underlying fundamentals of emerging markets are demographic in nature (larger and younger populations compared to the developed world) and have not deteriorated, nor do they shift much year-to-year.”

He added: “Despite the importance of this theme, there are few options to access it beyond concentrated ‘consumer’ sector strategies which lack a mechanism to address the potential for elevated valuations, given high expectations for growth. We have designed EMCG to provide exposure to broad cross sections of the markets, beyond one or two sectors, in companies we believe are positioned to benefit from the growth of emerging market consumption. Additionally, we marry this stock selection with a rigorous, rules-based framework to incorporate a sensitivity to valuations in our exposures.”

The fund has an expense ratio of 0.63%.

When it comes to competing for assets, the fund will line up against the NYSE Arca-listed EGShares Emerging Markets Consumer ETF (ECON) from Emerging Global Advisers, which has more than $1.2 billion in assets. This fund is linked to the Dow Jones Emerging Markets Consumer Titans 30 Index, an index measuring the stock performance of 30 leading emerging market companies in the consumer goods and consumer services industries as defined by the Industry Classification Benchmark (ICB).

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