By The Sizemore Letter<\/u><\/p>\n
I\u2019ve never been a big fan of the iShares MSCI Emerging Markets ETF<\/b> (<\/span>EEM<\/a>)<\/span> because I consider it to be one of the most poorly-named funds in history.<\/p>\n It\u2019s a great ETF\u2014so long as you\u2019re looking for exposure to companies that have already emerged<\/i>.<\/p>\n Up until its recent rebalancing, the two countries with the highest representation in the fund were South Korea and Taiwan.\u00a0 These two Asian tigers\u2014which both have living standards comparable to Western Europe\u2014are now ranked second and fourth among the ETF\u2019s holdings, though the two largest individual stock holdings<\/a> remain South Korea\u2019s Samsung<\/b> (<\/span>SSNLF<\/a>)<\/span> and Taiwan\u2019s Taiwan Semiconductor <\/b>(<\/span>TSM<\/a>)<\/span>.\u00a0 Great companies, no doubt, but hardly \u201cemerging market\u201d stocks.<\/p>\n The Czech Republic and Poland\u2014which are proud members of the European Union\u2014are also represented in EEM, and up until very recently so was Israel\u2014one of the most technologically advanced nations on earth.<\/p>\n So I\u2019ll repeat my chief complaint about EEM\u2014it\u2019s an ETF that does not live up to its name as an \u201cemerging market\u201d investment option.<\/p>\n And what about the BRIC economies of Brazil, Russia, India and China?\u00a0 Would a fund targeting the BRICs, such as the SPDR S&P BRIC 40 <\/b>(<\/span>BIK<\/a>)<\/span> be a better option?<\/p>\n Only marginally.\u00a0 Let\u2019s ignore for the time being that the BRIC countries have had terrible performance runs in the past couple of years and focus again on portfolio holdings.\u00a0 To start, Russia is not an \u201cemerging market.\u201d\u00a0 It\u2019s a petrostate facing terminal population decline and a loss of economic influence as oil and gas production shifts to the United States.\u00a0 So, one fourth of the BRIC quartet should be uninvestable for anyone looking for long-term growth.\u00a0 And while China, India, and Brazil all have their selling points, these three countries do not by any stretch comprise the entire emerging market universe.<\/p>\n This brings me to an ETF that addresses this major shortcoming, the EG Shares Beyond BRICs ETF<\/b> (<\/span>BBRC<\/a>)<\/span>, which is indexed to the FTSE Beyond BRICs Index.\u00a0 The ETF has a 75% weighting to more advanced emerging-market economies\u2014such as Mexico, Indonesia, Turkey and South Africa\u2014and a 25% weighting to up-and-coming frontier economies, such as Nigeria, Kenya and Vietnam.<\/p>\n Significantly, the index excludes the BRIC countries as well as South Korea and Taiwan. It\u2019s a one-stop shop for the countries to which most investors have little or no exposure.<\/p>\n So, how are we to put this ETF to work?<\/p>\n Emerging Global Advisors, the managers of BBRC and several other innovative emerging-market ETFs, created some model portfolios using assorted emerging market ETFs (see page 21 of their report<\/a>). There are different ways to implement this, but I would recommend something along the following lines:<\/p>\n These weightings do not have to be particularly precise, and there is plenty of room for you to overweight or underweight any of these ETFs based on market conditions or valuations.\u00a0 The key here is to get broad exposure to the real underlying macro trend\u2014the rise of the Emerging Market Consumer\u2014and to avoid limiting your exposure to just a handful of countries that have already largely emerged.<\/p>\n Sizemore Capital is long ECON.<\/p>\n Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management.\u00a0<\/em>Click here<\/em><\/a><\/strong>\u00a0<\/strong>to receive his\u00a0<\/em>FREE 8-part investing series that will not only show you which sectors will soar but\u00a0also which stocks will deliver the highest returns. The series starts\u00a0November 5 and\u00a0includes a FREE copy of his\u00a02014 Macro\u00a0Trend Profit Report.<\/em><\/i><\/p>\n This article first appeared on Sizemore Insights as For Emerging Market Exposure, Look Beyond BRICs \u2014 and Beyond EEM<\/a><\/p>\n\n