MSCI, a leading global index provider, has unveiled a new emerging markets index: the MSCI EM Beyond BRIC Index.
The MSCI EM Beyond BRIC Index’s significant exposure to South Korea (currently 16.6%) may concern some emerging market purists.
The index, a subset of the well known and widely used MSCI Emerging Markets Index, is composed of 17 countries and excludes the so-called BRIC countries – Brazil, Russia, India and China – which currently represent over 40% of the MSCI Emerging Markets Index.
According to a recent filing with the US Securities & Exchange Commission, the index appears set to form the basis of an exchange-traded fund (ETF) sponsored by SSgA, namely the SPDR MSCI Beyond BRIC ETF (EMBB).
Deborah Yang, Managing Director and Head of the MSCI Index Business in Europe, the Middle East, Africa and India, said: “The BRIC countries have been recognised over the past few years as key drivers of economic growth within the emerging markets and many institutional investors already have exposure to those countries within their portfolios.”
She added: “We have launched the MSCI EM Beyond BRIC Index in response to client demand and believe it offers a new way to track and evaluate the emerging markets opportunity set for those wishing to invest in countries outside the BRIC region.”
To help diversify the representation across the 17 countries in the index, the weights of larger emerging market countries such as Taiwan and South Korea are capped on a quarterly basis at 15%, giving greater prominence to smaller emerging market countries including Thailand, Malaysia and Indonesia.
Major constituents include Samsung Electronics (4.0% weight), Taiwan Semiconductor (3.2%), America Movil (2.5%), Naspers (2.1%) and MTN Group (2.0%). In terms of country exposures, South Korea currently has the largest weight with 16.16% – something which, despite the quarterly capping, may come as a concern to investors who now view South Korea as a developed market – followed by South Africa with 16.2%, Taiwan with 15.76%, Mexico with 12.3% and Malaysia with 8.78%. Firms in the financials sector comprise the largest weight (26.09%), followed by information technology (14.25%), materials (11.5%), consumer discretionary (11%), and consumer staples (9.37%). (Data as of 30 August 2013).
The strong performance of the index is likely to appeal to investors. Since 1999, the index has posted a gross annualised return of 12.0% in USD, compared to 11.1% for the MSCI Emerging Markets Index. In the past five years the outperformance has been starker. Since 2007, the index has had a positive annualised performance of 2.83% while the MSCI Emerging Markets Index had a negative performance of 2.1%.
MSCI is not the first index provider to venture beyond the BRICs whilst remaining specifically within the emerging markets space.
In October last year S&P Dow Jones introduced the S&P SMIT 40 Index, an index designed to measure the performance of 40 leading companies from the four largest markets – South Korea, Mexico, Indonesia and Turkey – of the so-called Next Eleven (N-11). The N-11 is a term developed by Goldman Sachs representing the eleven countries after the BRICs recognised as having the potential for strong long-term growth. This index has since become the basis for the ComStage ETF S&P SMIT 40 Index TRN (E129).
Similarly, Indxx, a New York and New Delhi-based firm, launched the Indxx Beyond BRICs Index in collaboration with emerging markets ETF specialists Emerging Global Advisors. This index provides broad exposure to the less mature emerging market countries outside of the BRIC nations and is the underlying index for the EGShares Beyond BRICs ETF (BBRC).