Korea Instead of Russia: First Trust Debuts ETF Aimed at the ‘BICKs’

Catering to the growing interest in emerging market investments, First Trust recently launched an emerging markets ETF that covers large-cap companies in Brazil, India, China and South Korea.

First Trust is offering a play for those betting that these four countries will stand out among other emerging markets as investment in infrastructure and growing domestic consumption drive those economies, writes Cinthia Murphy for IndexUniverse. The International Monetary Fund (IMF) projects GDP growth in emerging economies to be almost five times that of developed countries in 2010.

The First Trust BICK Index Fund (BICK) tracks the ISE BICK Index, which is made of 87 securities with a median market capitalization of $15 billion. The fund has 100 holdings and an expense ratio of 0.70%. The index uses an equal weighting methodology that divides each country into 25% of the portfolio, and companies within the country allocation are equally weighted. Each holding will represent less than 2.5% of the total portfolio.

Sector allocations include: financials, 25%; information technology, 22%; materials, 13%; smaller allocations are included in industrials, telecommunications, energy and consumer discretionary and staples. The information technology allocation is an appealing one, considering that South Korea, India and China in particular are fast-growing players in the area of technology development.

It should be noted that First Trust lists Brazil’s dependence on commodities, India’s liquidity issues, China’s governmental concerns and South Korea’s dependence on trade as risks that result in high volatility. Other recent news on the four countries include:

• Brazil. The Brazilian government will be announcing the second phase of its “growth acceleration program.” The government has its monetary instruments in strict control. Brazil is a leading exporter of iron ore, steel, coffee, soybeans, sugar and beef, and they have just uncovered large new oil beds that are expected to increase output in the coming years.
• India. India’s strength comes from its huge internal consumption levels. With such a huge population, India is better poised for economic growth compared to other emerging markets. India is not heavily reliant on its exports for growth. Companies tend to thrive without threat of international competition because of India’s protectionist business nature.
• China. The Chinese government also has a vested interest in building and maintaining the country’s infrastructure: when there are roads, runways, electric power, clean water and more, social unrest declines and productivity improves. Meanwhile, the country still struggles with concerns over an asset bubble and is taking steps to mitigate these issues. China’s GDP soared 11.9% in the first quarter.
• South Korea. South Korea, a leading manufacturer of microchips, LCD panels and automobiles, is one of Asia’s fastest-growing economies and the country has experienced the greatest increase in per-capita GDP since the mid-1960s. South Korea has maintained its edge by switching gears from a developing economy based on manufacturing into an advanced country that is increasingly based on innovation.

Max Chen contributed to this article.

Disclosure: None

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