The new product has been named Vident International Equity Fund (VIDI) and is trading on the Nasdaq Stock Market.
VIDI in Focus
This new ETF looks to track the Vident International Equity Index (VIE), which invests its assets in 35 most liquid developed and emerging countries outside the U.S. The VIE index is an enhanced benchmark that intends to strike a balance between the traditional capitalization-based methodology and the active method of risk minimization.
The index basically seeks to cash in on global equities with high potential and attractive valuation (read: 3 Overlooked Emerging Market ETFs).
As per Vident, faster growth, more human productivity and lower fundamental risks are three criteria VIE looks for while investing in any country. The index reflects considerable amount of diversification and follows a half-yearly rebalancing strategy. Moreover, it seeks to minimize country, currency and company-specific risks that is safer than the typical capitalization-weighted approaches, according to Vident.
While the index is governed by Emerging Asia and Developed Europe with around 27% and 25% focus respectively, markets like those in the developed Asia/Pacific region, Latin America and emerging Europe also receive big weights. Japan also has some exposure, but definitely not more than 17%. Meanwhile, North America accounts for 5% of the portfolio.
From a sector perspective, VIDI is most exposed to Financials (about 24%) followed by Consumer, Non-Cyclical (12%), Industrials and Basic Materials (10%). The fund is moderately pricey in the global equities ETF space. It charges investors a fee of 75 basis points a year which is slightly higher than the average expense ratio of the space.
How does it fit in a portfolio?
The new product should entice investors seeking to tap the long-awaited European recovery as well as the sluggish yet higher-yielding emerging Asian markets.
After all, although emerging market ETFs have been lagging their developed counterparts this year and have been among the worst performers, growth rates of these markets are still higher than many of the developed nations. Europe too has emerged from its crisis and could be considered an investment option at a relatively low valuation (read: 3 European ETFs Leading the Recovery).
Can it Succeed?
While VIDI surely looks to secure one of the highest yields in the developed (excluding U.S.) and emerging market space, it is by no means the only product focusing on the global equities space (excluding U.S.).
In fact, VIDI is likely to face stiff competition from a host of ETFs with the ultra-popular Vanguard FTSE All World ex-US ETF (VEU) leading the pack. There are also big names like Total International Stock ETF (VXUS) and MSCI ACWI ex US Index Fund (ACWX). All three cost less than VIDI and have at least $1 billion in assets under management.
The trio delivered at least 9.0% return in the year-to-date frame (as of November 1, 2013) braving taper concerns, U.S. government shutdown and structural issues in some major emerging economies.
Meanwhile, exposure-wise all these funds are roughly similar. All of these, including VIDI, have some coverage on North America in the single-digit range.
However, the trio has almost half of its allocations to Europe while VIDI currently has about 37% of its exposure to that continent. Instead, Emerging Asia has the bigger share of VIDI (read: Can These Emerging Market ETFs Continue to Outperform?).
VIDI’s underlying index – Vident International Equity Index – also seeks to outperform the MSCI ACWI ex-US Index in terms growth indicators. Moreover, VIDI can be a better tool for risk minimization.
A rebalancing strategy twice a year, an equal-weighted nature and reliance on fundamentals rather than a blind faith on market caps can provide VIDI an edge over most of its counterparts. Given the teeming global equities segment, VIDI may have to sell investors these unique features to stay competitive in the market.
This article is brought to you courtesy of Eric Dutram.