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Fund Watch: Gotham, Transamerica, Highland, ALPS And More

In this edition of Fund Watch, we preview new fund filings from: Eccles Street Event-Driven Opportunity ETF Transamerica Event Driven Fund ALPS Advanced Put Write Strategy ETF Gotham Index 500 and Total Return Funds Highland Files for 17 Alternative ETFs Eccles Street Event-Driven Opportunity ETF Eccles Street Asset Management filed paperwork with the Securities and Exchange Commission (SEC) on January 9, announcing its intention to launch the Eccles Street Event-Driven Opportunity ETF. Eccles Street will invest the fund’s assets in “event-driven” credit instruments, mostly corporate bonds and bank loans with an average maturity of 3-5 years. The instruments are considered “event-driven” because their issuers are involved in corporate “events,” such as mergers, acquisitions, bankruptcies, credit downgrades, proxy fights, or other restructuring. The Eccles Street Event-Driven Opportunity ETF will also invest in equities, especially credit-related ETFs and ETNs. Investments will be selected after Eccles Street Management, the fund’s sub-advisor, performs a credit analysis of the issuers of potential investments. The fund’s objective will be current income, with a secondary objective of capital appreciation. Transamerica Event Driven Fund Transamerica Funds filed a Registration Statement with the SEC for the Transamerica Event-Driven Fund on January 15. The fund will be sub-advised by Advent Capital Management, and it will pursue an event-driven strategy by investing in companies involved in corporate events or special situations. Absolute return is the fund’s objective. The Transamerica Event-Driven Fund will be available in A- and I-class shares, with net-expense ratios of 1.6% and 1.35%, respectively. Advent Capital Management’s Odell Lambroza, Tracy Maitland, and Doug Teresko are listed as the fund’s portfolio managers. ALPS Advanced Put Write Strategy ETF On January 6, ALPS ETF Trust filed a Form N-1A with the SEC announcing its plan to launch the ALPS Advanced Put Write Strategy ETF. The fund will seek total return, with an emphasis on income, by writing one-month put options on the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) . To write a put option is the same thing as short-selling a put option, and the ALPS Advanced Put Write Strategy ETF earns income by writing (short-selling) puts, effectively on the S&P 500. Put options rise in value as the value of their underlying instrument declines, and fall in value as their underlying instrument appreciates. The objective of a put writer is for the put contracts he or she sells short to expire worthless. The ALPS Advanced Put Write Strategy ETF will give investors the opportunity to earn income from unrealized fears as the S&P 500 climbs higher. Gotham Index 500 and Total Return Funds On January 15, Fundvantage Trust filed paperwork with the SEC for a pair of new alternative mutual funds: the Gotham Index 500 Plus Fund and the Gotham Total Return Fund. Author and former hedge-fund manager Joel Greenblatt is a co-portfolio manager of both funds. The Gotham Index 500 Plus Fund seeks to outperform the S&P 500 over most investment periods by using a long/short equity strategy. In addition to shares of common stock, its investments may include preferred stock, convertible bonds, rights, and warrants – all of which are featured in portfolio manager Joel Greenblatt’s 1997 book You Can Be a Stock-Market Genius . The Gotham Total Return Fund will be a non-diversified fund aiming to outperform the top-ranked university endowments over a full market cycle. Its assets will be allocated across other Gotham mutual funds, particularly the Gotham Absolute 500 Fund, the Gotham Enhanced 500 Fund, the Gotham Neutral Fund, and the new Gotham Index 500 Plus Fund. The fund’s long equity exposure is expected to be between 40% and 80%. Highland Files for 17 Alternative ETFs Highland Capital Management has made a big commitment to liquid alternatives space with a new filing for 17 ETFs that span across four broad hedge funds styles, including equity hedge, event driven, macro and relative value. The full list of funds is as follows: Highland Equity Hedge Fundamental Growth ETF Highland Equity Hedge Fundamental Value ETF Highland Equity Hedge Multi-Strategy ETF Highland Equity Hedge Technology ETF Highland Equity Hedge Healthcare ETF Highland Event-Driven Activist ETF Highland Event-Driven Credit Arbitrage ETF Highland Event-Driven Merger Arbitrage ETF Highland Event-Driven Multi-Strategy ETF Highland Macro Discretionary Thematic ETF Highland Macro Multi-Strategy ETF Highland Relative Value Fixed-Income Asset Backed ETF Highland Relative Value Fixed-Income Convertible Arbitrage ETF Highland Relative Value Fixed-Income Corporate ETF Highland Relative Value Fixed-Income Sovereign ETF Highland Relative Value Volatility ETF Highland Relative Value Multi-Strategy ETF Highland currently has one ETF in the market, the Highland iBoxx Senior Loan ETF (NYSEARCA: SNLN ), along with a range of alternative strategy and alternative income mutual funds. The launch of 17 alternative ETFs will make Highland one of the largest managers of alternative ETFs in the market.

Equity CEFs: Global CEFs For A QE Europe

Summary After years of lagging the US markets, will Quantitative Easing by the European Central Bank inflate the European stock markets much like the Federal Reserve did for US markets? That seems to be the central question as the ECB begins its own QE bond buying program designed to help stimulate the Eurozone economies. And if the ECB is successful, then what global equity CEFs might benefit as well? If Quantitative Easing – Europe style helps European stocks much like Quantitative Easing – USA helped our equity markets, then it stands to reason that global equity based CEFs that have a high exposure to European stocks might benefit as well. Though I am not familiar with any equity CEFs that are pure European stock focused, i.e. follow an index that includes the largest and most popular European stocks like an S&P 500, you can certainly find equity CEFs that have a large percentage of their portfolios, typically around 25% to 35%, exposed to the large cap European stock markets. This is in contrast to the Asia/Pacific region in which there are quite a number of equity CEFs dedicated entirely to stocks in these markets, whether they be general equity CEFs, emerging market CEFs or more country specific CEFs. The theory, however, is that any QE – Europe would probably benefit the largest and most liquid European stock names and thus investors should focus on equity CEFs that include these securities as part of their overall portfolio. There are also several ETFs, such as the popular iShares Europe fund (NYSEARCA: IEV ) , that will give you a pure play on the largest and most popular European stocks as a non-managed index fund, but I personally like the global equity CEF approach since not only are many of these funds trading at wide discounts and are at the low end of their discount/premium range, but they also are diversified so that you don’t put all your eggs in one basket in case QE – Europe doesn’t have quite the same effect as QE – USA. Most of the global equity CEFs I follow are diversified among the US, Europe and Asia/Pacific markets and can also offer varying income strategies that help pay for their large yields, generally in the 7% to as high as 11%. For example, leveraged income global equity CEFs will often include fixed-income securities such as preferreds or corporate bonds to reduce volatility and provide further diversification to protect against any one sector underperforming. After all, we’re not looking for home runs in these funds but rather relative outperformance over their CEF and ETF counterparts. So if you want the pure play European stock approach, then IEV or some other European stock focused ETF is probably a better way to go. But as you’ll see, diversification has its merits and many of these global equity CEFs have outperformed, both at the NAV and market price levels – the most popular international ETFs such as IEV or the more broadly based iShares Morgan Stanley EAFE international index (NYSEARCA: EFA ) , which includes Europe, Asia and the Far East stock markets, hence the EAFE. Global Equity CEF 1-Year and 3-Year Performances The following two tables sorts the global equity CEFs I follow by their total return NAV performances over one-year and then three years (through January 23rd so a little longer than one-year and three-ye ar periods). All of these funds have roughly 25% – 35% large cap European stock exposure though most will still have a higher exposure to US markets and some may be more Asia/Pacific stock weighted than European stock weighted. What are not included in the tables are global equity CEFs that focus in emerging markets are country specific or sector specific funds such as global utilities or global REITs. In other words, I’m just including global equity CEFs that may be beneficiaries of any QE – Europe due to their large cap European stock exposure. Also included at the bottom of each table are the total return ETF performances of the most popular international ETFs, IEV and EFA , and from the US major market indices, the SPDR S&P 500 (NYSEARCA: SPY ) , the Powershares NASDAQ-100 (NASDAQ: QQQ ) , the SPDR Dow Jones 30 Industrials (NYSEARCA: DIA ) . 1-Year Total Return Performance 3-Year Total Return Performance Recommended Global Equity CEFs For QE – Europe Using the tables above and other proprietary information regarding relative valuations and historic NAV performance, these are the global equity based CEFs with European stock exposure that I would recommend. First is the Eaton Vance Tax-Advantaged Global Dividend Income fund (NYSE: ETG ) , $16.15 market price, $17.71 NAV, -8.8% discount, 7.7% current market yield . ETG , along with (NYSE: ETO ) , are Eaton Vance’s two global leveraged equity based CEFs that also include about 20% of their portfolios in fixed-income preferred securities. Both of these funds, along with (NYSE: EVT ) , which is Eaton Vance’s leveraged US based CEF, are higher risk, higher reward CEFs due to their use of leverage but all have been fantastic performers over the past few years both at the NAV and market price level. ETG used to have the highest valuation of all of the Eaton Vance leveraged CEFs but currently trades at a -8.8% discount, at the low end of its Premium/Discount range as shown in this 3-year Premium/Discount chart. (click to enlarge) ETG includes about 32% of its portfolio in large cap European stocks, 7% exposure in Asia/Pacific and the rest mostly in US based large-cap stocks. ETG’s overall portfolio is 82% equities and 18% preferred securities. I have followed ETG for years and I often used it as a short hedge against my long CEF positions as the fund would often spike up to trade close to a premium valuation for short periods only to drop back to a wider discount. For investors who think that CEFs don’t stray much from their premium/discount valuations over time, ETG is a good example of a fund that does. Eaton Vance’s other leveraged global equity CEF, ETO is similar to ETG but trades at a much narrower and even historically narrow -1.2% discount due to recent distribution increases and very large capital gain distributions over the last couple years. Frankly though, both of these funds have knocked the cover off the ball the last few years even with their global stock exposure and have far outperformed IEV or EFA at both the NAV and market price levels. Referring to the tables above, ETG has returned 62.4% to investors at its market price in a little over three years while ETO has returned a whopping 81.6% . Have The Alpine CEFs Finally Turned The Corner? Well, I never thought I would say this but the second group of global equity CEFs I would recommend to take advantage of a European market turnaround are the Alpine Total Dynamic Dividend fund (NYSE: AOD ) , $8.66 market price, $10.02 NAV, -13.6% discount, 7.8% current market yield and the Alpine Global Dynamic Dividend fund (NYSE: AGD ) , $9.99 market price, $11.25 NAV, -11.2% discount, 7.7% current market yield . For those of you who have followed my articles over the years, you know that I had been one of Alpine’s biggest bears ever since I started writing on Seeking Alpha due to the two fund’s ineffective dividend harvest income strategy that dramatically eroded the fund’s NAVs over the years while overpaying their distributions. Alpine finally got the message a couple years ago and brought in new portfolio managers who first took steps to minimize the use of their dividend harvest strategy while significantly reducing the distributions to a more reasonable NAV yield. Then just a year ago, Alpine implemented a reverse split (not their first) for the two funds to boost up their depressed NAV prices. Though this was tough medicine to take and the funds still reflect some of the worst NAV and market price performances of any equity CEFs since their inceptions in 2006 and 2007, it’s safe to say that the funds have finally turned it around and are seeing a resurgence in their NAV performances. Though AGD is considered the global of the two funds, the fact is both funds have similar portfolios and similar exposure to European equities, with AGD showing 32% of its portfolio in European stocks, 55% in US stocks and about 11% in Asia/Pacific while AOD’s portfolio breakdown is 29% in European stocks, 58% in US stocks and 11% in Asia/Pacific (as of 10/31/2014). Though the funds rely less on a dividend capture income strategy now and have much more achievable NAV yields of about 6.8% instead of the 12%+ NAV yields they use to have, there still seems to be hesitation by investors as to whether the funds have actually turned the corner. This is reflected in the fund’s wide discounts with AGD at a current -11.2% discount and AOD at one of the widest discounts of all equity CEFs at -13.6%. But this is where the opportunities lie because investors were wrong in their zeal for AGD and AOD several years ago (as I pointed out in many articles) when investors drove the fund’s valuations up to market price premiums as high as 50% in early 2010 and I believe they are wrong now as the fund’s drop to double digit discounts just at a time when their improved income and growth strategies could really start to pay off. A Global Equity CEF With The Highest European Exposure The last global equity CEF I am recommending is also one I used to pan because of its high valuation and lackluster NAV performance, but it also has one of the highest exposures to large cap European stocks if you believe the time is now for this region to outperform. The Voya International High Dividend Equity Income fund (NYSE: IID ) , $7.94 market price, $8.44 NAV, -5.9% discount, 10.4% current market yield targets 50% of its portfolio to be invested in European stocks, 40% in the Asia/Pacific region and only about 9% in US stocks. This minimal exposure to the US markets has resulted in IID’s severe NAV and market price underperformance over the last few years though the fund has continued to maintain a high NAV yield and offer an extremely generous market price yield, currently 10.4% paid monthly, even in the face of this underperformance. Some might argue that this is still too generous as the fund’s NAV yield of 9.8% will not be easy to achieve for an option-income CEF that targets a fairly low 20% – 50% of its portfolio to write options against. In other words, IID will need a lot more portfolio appreciation going forward if it wants to continue to pay out that high of an NAV yield. Because the alternative is continued NAV erosion and a diminishing asset base, which makes it that much more difficult to sustain the current distribution. I personally would feel even better about IID’s turnaround prospects if Voya cut the distribution to a more attainable 7% – 8% NAV yield because if the QE – Europe effect doesn’t play out, then Voya will probably have to take that step. IID , like ETG , is another fund that can vary widely in its valuation, going from a market price premium to a market price discount in a matter of weeks as seen in this three-y ear Premium/Discount graph. (click to enlarge) As you can see, IID’s current -5.9% discount is at the bottom of its range for a fund that typically can trade at a market price premium. Though IID is certainly not the most undervalued global equity CEF even at the bottom of its discount range, one reason why it trades at such a high relative valuation is because of its appreciation potential. Because if the international markets like Europe start to play catch up with the US markets, then IID is one of the best high risk/high reward equity CEFs to take advantage of that. Conclusion All of these fund’s portfolios can be seen at their fund sponsor’s websites and this analysis does not take into account a fund’s actual stock holdings though there tends to be a lot of overlap in the large-cap international stocks these funds own. In addition, most of these global equity CEFs use hedging strategies to reduce currency risk and the effectiveness of these strategies is also not taken into consideration. But if you believe that QE – Europe has the potential to do for large-cap European stocks what QE – USA did for our markets, then these global equity CEFs, offering low valuations and high yields, could be an excellent way to play off that effect.

At The Crossroads Of Emerging And Frontier Markets

Summary Emerging Markets are no longer one cohesive group. The BRICs are each a separate investment case, heading in different directions. Smaller emerging and some frontier markets deserve investing consideration for their growth potential. EMFM appears to be the most compelling out of several ETF options available. Speaking on March 7, 2014, at the National Association of Pension Funds investment conference in Edinburgh, Laurence Fink, chairman and CEO of Blackrock (NYSE: BLK ) brought up the subject of emerging markets . “We talk about emerging markets as if they are one compatible, cohesive market – but within emerging markets we have some very good examples of well-run countries, and we have some real garbage… I do believe we will see much more granularity in the investment of the developing world and we will stop talking about emerging markets as an asset class.” As an example, Mr. Fink pointed to the way the UK investors have a different focus than those in the rest of Europe. Blackrock is one of the largest asset managers and the largest ETF provider in the world, and the words of its visionary CEO were heard loud and clear. The Decade of the BRICs To be fair, Mr. Fink’s idea was not new, but the market’s participants have been slow to recognize it until the recent few years. It’s hard to argue that the previous decade was the Decade of Emerging Markets, or more precisely, the Decade of the BRICs. Brazil, Russia, India, and China – the four largest emerging economies – have taken the lead, and others followed, creating a high correlation of returns throughout most of the 2000’s. The story in the past three years or so has been quite different. Chinese slowdown, highlighted by the real estate bubble and the shadow banking near-crisis, is well-documented. The growth potential is still there, but it’s not what it once was. Brazil has had its share of problems, where higher inflation, infrastructure problems, economically unfriendly government policies, lower commodity prices, and moderated growth had their negative effects on the economy and the local equity market. India, on the other hand, has enjoyed a significant resurgence last year following the election of President Modi. Investors see his proposed sweeping economic reforms a cause for optimism, driving Indian market to one of the best performances of 2014 around the globe. India is a major net importer of energy, which is another boon to its economy right now. Finally, Russia deserves a special mention. In April, 2014, I published an article entitled, Clear and Present Danger to the World Economy . Its basic and controversial thesis was that, in the wake of Russian annexation of Crimea, a huge macro shift was underway, which was likely to cause higher defense spending, European shift away from Russian gas, higher volatility in European equities and energy prices, and ultimately much lower Russian equities and ruble. The controversy came from the fact that the Russian equity market and ruble have already experienced a substantial slide in the previous 6-week period. Some Seeking Alpha readers felt that those were caused solely by the headline risk, that Europe and the US were too weak politically for economic sanctions and that the Russian market was ripe to buy on the dip. Perhaps that thesis is no longer controversial, as all these macro themes have been playing out nicely over these nine months, and the recent monumental crash in Russian market and currency have been exacerbated by the equally monumental and unpredictable oil market crash. There are now some voices, as there always are, that are calling the bottom of the Russian market. After all, their argument is that the oil slide has slowed down and can’t continue forever, while Russian equities are currently some of the cheapest in the world on the P/E basis, some with enticing dividend yields, to boot. However, I put myself squarely into the bearish camp yet again, arguing that the Russian equities are cheap for a reason. A short-term oil price bounce can certainly provide a short-term relief to the stocks, just like the Chinese currency support announcement and a Central Bank dramatic rate hike from 10.5% to 17% provided a short-term stub to the ruble’s collapse, but the macro situation has not changed. The Western sanctions are working well, the Russian economy is suffocating, Europe’s dependence on Russian gas is decreasing, and the 17% interest rate is destroying local businesses faster than falling oil. The coming downgrade of the sovereign debt to junk and likely bankruptcies of the more vulnerable Russian businesses [or government bailouts as they have already done, in fact, with Rosneft ( OTC:RNFTF )] will merely accelerate the process the way the oil collapse has. The dividends, too, are about 50% less enticing than a year ago when converted into dollars and can disappear at any moment as large payers start to run out of cash. And any recent rumors of possible easing of sanctions have been quashed, with political and military situation in Eastern Ukraine not only not getting better, but worsening and looking to get much worse yet before getting any better. In fact, sanctions will almost inevitably get tougher yet. The only possible remedies to the Russian economic malady would be either complete about-face on Ukraine and Crimea, wholesale replacement of government leadership, or dramatic and sustained surge in oil prices, and I consider all three highly unlikely in the foreseeable future. (click to enlarge) The State of Emerging Markets But I digress. Regardless of the special situation in Russia, it would appear that the BRICs are no longer leading, nor their returns are correlated to each other or to other emerging markets. The chart above shows a comparison of 3-year returns of the BRICs against S&P 500 and diversified Emerging Markets using ETFs as proxies. iShares MSCI India (BATS: INDA ) has clearly outperformed its peers, with iShares China Large-Cap (NYSEARCA: FXI ) not too far behind, lagging India in the past six months only, while Market Vectors Russia ETF (NYSEARCA: RSX ) and iShares MSCI Brazil Capped (NYSEARCA: EWZ ) have posted steep losses in the cumulative 50% range. The fact is that China now possesses the second largest GDP in the world, and the other three BRICs are also in the top 10 in the world, according to the World Bank . While GDP is not part of the standard definition of emerging markets, a case could be made that the BRICs no longer fit the category where investors expect higher rewards for higher growth, albeit at a higher risk. Most of the risks commonly associated with emerging markets are still there, but the growth may never be the same. It is also clear that investing in each of the BRICs should be considered separately, to Mr. Fink’s point. It doesn’t mean that there is no longer need for diversified emerging markets mutual funds of ETFs, such as the popular iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) or Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) . Just as there’s a dedicated UK fund, there’s still a business case for investment in a Western European or Developed World Equity fund where a small portion will be allocated to the UK. But which time is now: to pick specific countries or go with a broad group? For the purposes of diversification and to minimize a small-country political, headline and currency risks, a broader group remains a prevalent choice. However, the country selection choice in such funds is of paramount importance. Another article I wrote over a year ago, Emerging Markets: The Next 11 – Where To Invest , makes a reference to N-11, the “next 11” emerging economies after BRICs. It was first presented nearly ten years ago by the former chairman of Goldman Sachs Asset Management Jim O’Neill, perhaps best known for coining the BRIC acronym. The list is still very relevant, although the investment options for some of these countries are very limited. Frontier markets – generally defined as less developed and smaller than emerging markets – have emerged (pardon the pun) in recent years as an alternative to investors seeking growth rates similar to the emerging markets of the past decade. The two broad, dedicated frontier ETFs available today – Guggenheim Frontier Markets (NYSEARCA: FRN ) and iShares MSCI Frontier 100 (NYSEARCA: FM ) – have had differences in performance, as the graph below shows, precisely due to the country selection. It’s worth noting that in May, 2014, due to MSCI change in its index methodology, Qatar and UAE have become Emerging Markets, and the FM ETF had to rebalance what was about a third of its portfolio previously. Perhaps one of the key issues of frontier markets from investing standpoint is the tradeability and liquidity of securities. Many countries have laws restricting foreign investment or trading on local exchanges. China has only recently opened access to their Mainland A-shares. Saudi Arabia may finally be opening their market to foreigners in 2015, and no less than 3 dedicated ETFs are in SEC registration – from Blackrock, Global X, and Market Vectors. What often happens is that ETFs have to use stocks traded on Western exchanges or even Western companies doing business in frontier countries rather than local pure plays, for the sake of lowering transaction costs, avoiding legal issues, and increasing liquidity. Searching Beyond BRICs As investors – and then ETF issuers – started to look beyond BRICs for growth, the boutique firm EGShares was first to bring such a fund to the market as early as August, 2012 – EGShares Beyond BRICs (NYSEARCA: BBRC ) . Its focus is on smaller emerging markets, as advertised, and excludes BRICs, South Korea, and Taiwan. The last two countries are considered developed by some methodologies, so that VWO based on the FTSE index excludes Korea, for instance. The largest countries represented in BBRC’s 90 holdings are, in order, South Africa, Malaysia, Qatar, Indonesia, Nigeria, Thailand, Poland, Turkey, and Chile. State Street soon followed with SPDR MSCI EM Beyond BRIC ETF (NYSEARCA: EMBB ) , but less successfully. Using MSCI Beyond BRIC index, this ETF has a similar country selection, except South Korea and Taiwan are included and combine for about 30% of the portfolio. Greece is also a constituent, albeit small, due to its downgrade to emerging markets by MSCI. BBRC currently has $281M of assets and charges 0.58% expense ratio, to EMBB’s only $3M and 0.55%. The latest newcomer in the category is the iShares MSCI Emerging Markets Horizon ETF (BATS: EMHZ ). It debuted in November, 2014, and is benchmarked against the MSCI Emerging Markets Horizon Index, which is designed to track the equity performance of the smallest 25% of countries by market capitalization in the universe of MSCI Emerging Markets Index countries. Naturally, this criterion excludes the BRICs. Mexico, Malaysia, Indonesia, Thailand, Turkey, Poland, Chile, Philippines, Qatar, Peru, Colombia, UAE, Greece, and Egypt are included in the benchmark. As the thinly traded fund is trying to pick up more than the $2.3M AUM it has accumulated so far, it sports the smallest expense ratio of its peers of only 0.50%. However, all these choices, while focusing on smaller emerging markets, completely disregard the promise of frontier markets. Best of Both Worlds Enter Global X Next Emerging & Frontier ETF (NYSEARCA: EMFM ) . Global X has carved out a nice niche in the ETF space specializing in smaller Emerging and Frontier Markets. It is no wonder then that they teamed up with German indexer Solactive , which is known for indexing alternative investments, to bring this ETF to market in November, 2013. The ETF and the underlying index also excludes BRICs, South Korea, and Taiwan, but includes quite a cross-section of Emerging and Frontier markets listed below, living up to its aptly chosen ticker. The portfolio consists of 218 stocks that represent 34 countries, making it much broader than the choices described above. Generally, the Frontier markets have shown low correlation to the developed world and among themselves, making their inclusion in portfolios more attractive. In particular, there’s a meaningful exposure to Africa and Middle East that other options lack. With the exception of South Korea (by choice) and Iran (by necessity), all the N-11 countries are included. That type of diversification means that no position takes up as much as even 2% of the portfolio, and the top 10 holdings account for only 14%. Some of the largest holdings trading in US include Argentinean e-commerce company Mercadolibre Inc. (NASDAQ: MELI ) and energy giant YPF SA (NYSE: YPF ), Panamanian airline Copa Holdings (NYSE: CPA ), and Mexican telecom America Movil (NYSE: AMX ). To bolster its investment case, Global X favorably compares EMFM portfolio’s revenue growth to that of EM or US small-caps, as well as EMFM’s population, market cap and GDP vs. the world. The fund has attracted a very healthy $136M in assets, with about average expense ratio for the group of 0.58%, despite a broader portfolio. A 1.70% dividend is also a nice bonus. New Registration On October 30th, 2014, iShares has filed for a new ETF registration. The iShares MSCI Emerging Workforce ETF is another potential contender in the space and takes a unique approach to developing-market investing that focuses specifically on demographics. The underlying index is derived from the MSCI Emerging + Frontier Markets Index and targets countries that have “favorable demographic criteria,” where the population’s average age skews younger and better educated as well as countries with high rates of urbanization and less reliance on agriculture. The prospectus noted that the index had 467 companies as of Oct. 1, and included the markets of Argentina, Brazil, Chile, China, Colombia, Egypt, Indonesia, Kuwait, Malaysia, Mexico, Peru, Philippines, South Africa and Turkey. Once the demographic-selection criteria are applied to achieve an initial list of markets, countries representing less than 0.25% of the index are removed, and weights of individual countries are capped at 20% of the index at rebalancing. (click to enlarge) Timing and Risks Developing Markets cumulatively did not have a good year in 2014. The strong dollar, falling energy and commodity prices, the spread of Ebola in Western Africa, and geopolitical threats with the rise of ISIS in the Middle East and the war in Ukraine have all been contributing factors. EMFM is not immune to these risks, and it’s basically flat over the last year, but it exhibits the lowest volatility of its peer group. At the onset of the new year, with the fund rebounding somewhat from the steep losses in the fall, now may be an opportune time for the long-term investor seeking growth away from the developed world and the BRICs. Conclusion Investors looking to add exposure to developing markets should look at options that exclude BRICs and consider each BRIC as a separate investment case. There are several ETF options in the space, with EMFM being perhaps the most compelling from the diversification, liquidity and risk/reward standpoint. Timing may also be right to consider adding it to one’s portfolio.