CWI SPDR MSCI ACWI

With over $2 trillion in assets under management, State Street Global Advisors, the investment management arm of State Street Corporation (STT), best known for providing investment strategies and integrated solutions to clients worldwide, recently added two more products to its international ETF lineup by launching the SPDR MSCI EM 50 ETF (EMFT), and the SPDR MSCI ACWI IMI ETF (ACIM). EMFT targets a subset of the two largest funds in the emerging markets space, while ACIM blends developed and emerging stocks into a single product.

The new funds also look to help SSGA round out its offering in the international and emerging market space, where the company has less than 10 funds in total. Hopefully, from the firm’s perspective, these new funds can see similar inflows as what the company has seen in its popular gold, sector, and broad market U.S. funds. As a result, the inclusion of these ETFs can be viewed as a strategic move by State Street to gain market share and widen its investor base in this highly vibrant and potentially lucrative area (also read iShares Launches Three New International ETFs).

While the products may be useful additions to State Street as the company looks to catch up to iShares in the international space, the funds could be of interest to investors as well. Below, we highlight some of the key points that investors need to take away from this launch as well as how these ETFs may fit into a portfolio, and how they compare to more established funds already on the market:

Both the new funds aim to provide investors international exposure including higher risk higher reward developing markets. The internationally diversified funds seek to do this by investing across a variety of companies from a wide spectrum of market capitalization levels and sectors. The SPDR MSCI ACWI IMI ETF (ACIM) seeks to track the performance of the MSCI All Country World Investable Market Index. This benchmark is a free float adjusted, market capitalization weighted index comprising up to 98 percent of the developed and emerging market securities. Recently, the underlying index was comprised of 8,920 publicly traded securities across 45 countries (see Ten Best New ETFs Of 2011).

Meanwhile, the SPDR MSCI EM 50 ETF (EMFT) seeks to track the performance of the MSCI EM 50 Index. The index underlying this product is a free float-adjusted market capitalization-weighted index that includes 50 of the largest MSCI Emerging Markets Index constituents. Investors should also note that the universe consists of locally listed securities, except in the case of Brazil, India, Mexico, and Russia, where depositary receipts are used instead.

Holdings of ACIM and EMFT

In terms of holdings, ACIM invests 46% of its net assets in US based companies. This results in higher concentration risk as it puts a plurality of its assets within the boundaries of the world’s largest economy. However, this can also help to promote liquidity, a fact that is best indicated by looking at some of the top ten holdings including; Apple Inc. (AAPL) 1.35%, Exxon Mobil Corp. (XOM) 1.30%, IBM Corp. (IBM) 0.73% , and Chevron Corp (CVX) 0.66%, all securities which are widely held and traded on a daily basis.

As far as sector exposure is concerned, the fund mainly emphasizes Financials, IT, Capital Goods, and Energy, as these constitute 19.26%, 12.50%, 11.58%, and 11.18%, respectively, making it a well diversified fund. Lastly, investors should note that the product is pretty cheap compared to most in the space, as it charges investors 25 basis points a year in fees, well below the 43 basis points that is the category average (read Five Cheaper ETFs You Probably Overlooked).  

On the other hand, EMFT offers great diversification from both a geographic and sector perspective. With that being said, investors should note that the fund does have a tilt towards Pacific Rim economies as well as those in the BRIC bloc. The major country holdings include 18.66% in South Korea, 18.17% in China, 16.80% in Brazil and 11.20% in Russia. From a sector perspective, it mainly emphasizes Financials 23.32%, Energy 21.88% and IT 19.50%. The expense ratio of this fund is 0.50% (category average 0.65%) which is also the lowest among the SPDR emerging market ETFs, but not the lowest in the category overall.

Competition

While the funds could see some interest from investors, they look to face stiff competition from entrenched products as well. On the emerging markets side, EMFT looks to face up against the ultra popular Vanguard MSCI Emerging Markets ETF (VWO)  and the iShares MSCI Emerging Markets Index (EEM). Both of these funds target emerging markets as well, but look to do it more broadly with more individual holdings (read Three Overlooked Emerging Market ETFs).  

ACIM also looks to face a tough road on its path to asset inflows, thanks to a number of competing products. In addition to a couple of funds from State Street—CWI and GWL in particular—Vanguard also has two entrants in the ex-US world space while iShares has its MSCI ACWI ex-US fund as well. Nevertheless, ACIM’s focus on only large caps, and the inclusion of American securities, could help the fund promote liquidity making this product have tight bid ask spreads when compared to some peers. If that is the case, the fund could see lower total costs than many others in space, and much like EMFT, possibly see inflows despite heavy competition.

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