At first blush it sounds a little gimmicky. Thirty ways to buy into emerging markets without actually having to invest in emerging market companies: every investor knows the best way to be exposed to China is to invest in Chinese companies.
And every global investor knows there are multinational companies that garner a third or more of their revenues from outside their home base -- Europe, Japan, the U.S. That's what international and global mutual funds are for. You invest in
However, not every multinational is as multinational as investors think.
From investment advisors and their clients, there's the problem of risk. Some clients don't want to invest in Brazilian stocks. They prefer the Warren Buffett approach of buying what they know. Most Americans have never heard of Itau-Unibanco. Investors approaching retirement might have the risk appetite to go south of the border, but their advisors might feel it is more prudent to do so by investing in a U.S. company like Colgate Palmolive, the most beloved household brand in India, according to The Economic Times.
For that investor profile, there's Emerging Global Advisors' latest exchange traded fund, the EGShares Blue Chip (BCHP), which launched on Wednesday. The ETF joins their roster of 12 existing funds with combined assets under management of $1.5 billion. Investors will be hard pressed to find global mutual funds that have this kind of laser focus.
"The product is for people who are trying to raise their emerging market exposure and trying to do it through developed markets because of volatility," said Marten Hoekstra, CEO of Emerging Global Advisors. "A lot of companies talk about doing business in emerging, but the S&P 500 is maybe just 14% emerging market revenue. If you sent up criteria where you have measurable emerging market revenue that is material to the company, and that revenue is growing and the company is respectable, then it can make our index," Hoekstra said.
To truly invest in emerging by investing in non-emerging multinationals is a bit like finding a needle in a haystack.
EGA examined the financial data for around 2,000 companies to gauge which ones disclose emerging market revenue. Some companies use generic geographic sales groupings like "North America", which includes emerging market Mexico, but also the obvious: U.S. and Canada. Just 40% provide meaningful sales breakdowns and even within that universe of names, EGA was unable to tell the depth of their emerging market revenue.
"We ended up with around 24% out of the 2,000 that give us a sense of emerging market sales," said Edward Kerschner, Vice Chairman of EGA.
Analysts at EGA cut through that list to find companies where at least 22% of their revenue could be identified as coming from emerging markets.
This is what they got.
QUALCOMM Incorporated
Rio Tinto
Anheuser-Busch Inbev
Diageo
Colgate-Palmolive Company
Las Vegas Sands
Glencore Xstrata
Compagnie Financiere Richemont
SABMiller
YUM! Brands
Swatch Group
Southern Copper Corporation
Mosaic Company
Wynn Resorts
Old Mutual
Telenor
Fluor Corporation
Kansas City Southern
Mitsubishi Motors Corporation
Millicom International Cellular
Uni-President Enterprises Corp.
Skyworks Solutions
Tenaris
Asustek Computer
Distribuidora Internacional de Alimentacion
Seek Limited
Finning International
Pacific Rubiales Energy Corp.
Mapfre
A. O. Smith Corporation
*each company accounts for 3.33% of the fund.
