The most widely used benchmark for exposure to emerging markets is the MSCI Emerging Markets TRN Index. Investors often wrongly assume that buying exposure to this index gives them exposure to the BRIC (Brazil, Russia, India and China) economies. But while the index has a significant weighting to China and Brazil - of around 18 per cent and 16 per cent respectively - the other BRIC peers, India and Russia, have much smaller weightings.
If you are buying the db x-trackers MSCI Emerging Markets TRN Index exchange-traded fund (ETF), which tracks this index you will in fact will be getting exposure to a broad spread of 23 emerging market country indices, including significant exposure to countries such as South Korea, Taiwan and South Africa.
The ETF tracks the index by using a synthetic replication technique which sees it using swaps to duplicate the performance of the MSCI Emerging Markets TRN Index. While this brings up the issue of counterparty risk, as the fund is a Ucits III compliant vehicle, it is only permitted to be exposed to a maximum of 10 per cent derivative counterparty risk.
The ETF enjoyed a strong performance over the course of 2009 as emerging markets took off amidst the rebound in equity markets. However its long-term performance has been less stellar and since its launch in January 2007 the fund has slightly underperformed the index it tracks, delivering minus 8.23 per cent, compared with minus 6.77 per cent.
That said, the ETF comes with an all-in fee of 0.65 per cent which makes it a cost-effective alternative to getting emerging market exposure via a mutual fund, considering that most active managed funds in this space will have a total expense ratio in excess of 1.5 per cent.
|db x-trackers MSCI EMERGING MARKETS TRN INDEX ETF (NDUEEGF)|
|ASSETS UNDER MANAGEMENT:||$3.88bn||2-YEAR PERFORMANCE:||-53.65%|
|LAUNCH DATE:||22 June 2007||PERFORMANCE SINCE LAUNCH:||-8.23%|
|INDEX:||MSCI Emerging Markets TRN Index||TOTAL EXPENSE RATIO:||0.65%|
|LEGAL STRUCTURE:||Ucits III||YIELD:||2.05%|
|BASE CURRENCY:||USD||MORE DETAILS:||dbxtrackers.com|
|TRACKING ERROR SINCE INCEPTION:||-1.46|
Source: db x-trackers
Performance figures as at 26 February 2010
Top 10 index constituents
|PetrobrasPetroleo Brasileirso SA Pref||1.93|
|Vale SA PREF A BRL NPV||1.66|
|PetrobrasPetroleo Brasileirso SA||1.57|
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