ETF Expert

A Twitter user (or is it "twitterer") asked me what I thought about the 2 new emerging market funds, the Emerging Markets Energy Fund (EEO) and the Emerging Markets Metals & Mining Fund (EMT). I told him that I liked the concept, but that I expect the price movement to be identical to similar funds in existence.

For example, the iShares Brazil Fund (EWZ) offers large company exposure to resource-rich Brazil. If you have EWZ in your portfolio, however, you're not going to want to duplicate your efforts with the iShares Global Materials Fund (MXI). The correlation is astonishingly high.

Nevertheless, CEO Robert Holderith of the new fund provider, Emerging Global, feels that emerging market sector funds will be a hit with the Street. I'm not so sure. If the Emerging Markets Metals & Mining Fund (EMT) demonstrates a near perfect correlation to the iShares Brazil Fund (EWZ), then the bulk of the investing public will not see a need for the new emerging market sector fund.

There are plenty of precedents. For instance, while 160,000 shares of iShares Global Energy (IXC) trade daily, State Street's SPDR International Energy (IPW) has less than 3000 shares trading on any given day. That's woefully low trading volume after 9 months in the public domain, particularly from a State Street sponsored ETF. What's more, IXC and IPW travel the same path.

Is this because the international energy concept fails to distinguish itself from that of global energy? If so, how would emerging market energy set itself apart from "global" or "international?"

Again, from a conceptual standpoint, emerging market sector ETFs are appealing. I take my hat off to the new company, Emerging Global, for taking a "cavalier-like," 3/4-court shot at the basket.

That said, I expect the Emerging Markets Energy Fund (EEO) to trade with about as much vibrancy as State Street's SPDR International Energy (IPW). And that's not particularly vibrant.

On another note, Emerging Global CEO Robert Holderith reported to the Dow Jones Newswires that he likes the growth of the middle class in Brazil. So do I… but that doesn't mean an emerging markets consumer fund is likely to succeed. (In contrast, Small-Cap Brazil BRF does stand a chance to succeed!)

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.