Lyxor has launched Europe’s first ETF to provide emerging market equity exposure while avoiding stocks from China.
Chanchal Samadder, Head of Equities at Lyxor ETF
The Lyxor MSCI Emerging Markets Ex China UCITS ETF tracks the MSCI Emerging Markets ex China Index via a synthetic (or swap-based) replication approach.
The index tracks large- and mid-cap companies within 25 developing economies, excluding China.
With 703 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
China is the largest country exposure within the parent MSCI Emerging Markets Index with a weight of 31.5%. Its exclusion, therefore, significantly alters the country weightings in the ex-China index compared to the full EM universe. South Korea is bumped up to the top spot with a weight of 18.1%, up from 12.4%, followed by Taiwan (15.8%), India (13.1%), Brazil (11.2%), and South Africa (8.7%).
Financials and information technology lead the index’s sector exposures with weights of 26.5% and 18.9% respectively, followed by materials (10.1%), energy (9.6%), and consumer discretionary (8.8%). The largest single constituents are Samsung Electronics (5.1%), Taiwan Semiconductor (5.0%), and Naspers (2.8%).
The fund comes with a total expense ratio of 0.30% and has been listed in euros on Xetra (EMXC GR) and in US dollars on the London Stock Exchange (EMXC LN).
According to Lyxor, the fund is aimed at investors who wish to gain broad emerging market exposure while managing their allocation to China more precisely separately.
Lyxor points to China’s size, population, ongoing market liberalization, and expected growth rate (China will provide around 28% of global GDP growth in 2019–2020, according to Bloomberg’s analysis of the IMF World Economic Outlook) as supporting factors for managing a stand-alone allocation to the Asian superpower.
By using the EM ex-China ETF as a baseline for their emerging market allocation, investors can then tailor their exposure to China separately with single-country ETFs.
Chanchal Samadder, Head of Equities at Lyxor ETF, commented, “This new ETF allows investors to gain broad exposure to some of the world’s most dynamic developing countries and, at the same time, make their own independent allocations to China. We’re proud to be the first to bring this exposure to the European ETF market, as we firmly believe it will become an important strategic benchmark for clients.”
Lyxor offers an extensive range of China-focused ETFs including the lowest cost MSCI China ETF in Europe – the Lyxor MSCI China UCITS ETF (LCCN LN) – which comes with a TER of 0.30%, as well as the Lyxor Hwabao WP MSCI China A (DR) UCITS ETF (CNAA LN) which already includes A-Share mid-caps ahead of MSCI’s inclusion timeline.