Under The Hood: New ETF, New Profits?

It's rare that we go under the hood with an ETF that has just one trading day under its belt, but when the opportunity presented itself, we decided to give it a short. That new ETF is the SPDR S&P Small Cap Emerging Asia Pacific ETF GMFS, which debuted on Thursday. Apparently the ETF is off to quite a start as the SPDR Web site says the assets under management for the ETF are $5.98 million after just one day on the market. With an expense ratio of 0.65%, the SPDR S&P Small Cap Emerging Asia Pacific ETF focuses on companies with market caps of, you guessed it, less than $2 billion. The largest market cap found in the ETF is just over $2.2 billion while the fund's weighted average market cap is almost $460 million. Four sectors – financials, industrials, consumer discretionary and consumer staples – get double-digit allocations in GMFS with materials not far behind at 9.74%. Energy, utilities, health care, technology and telecom are also represented in the new ETF. By its name, it might appear the SPDR S&P Small Cap Emerging Asia Pacific ETF is China heavy. That's a reasonable assumption to make as China is home to plenty of small-cap companies, enough to make a few ETFs devoted to that theme, in fact. However, GMFS is NOT China heavy. Actually, the new ETF offers exposure to six countries and China is at the bottom of that list with a weight of just 3.45%. India gets a weight of almost 34% and that might not be a bad thing if downtrodden India-specific small-cap ETFs such as the Market Vectors India Small-Cap ETF SCIF and the EGShares India Small Cap ETF SCIN reboun in 2012, which they are showing signs of doing. Malaysia gets a weight of 24.5%, but what we really like is the combined 38% exposure to Indonesia, Thailand and the Philippines. That's a plus to be sure. It's too early to pass judgment regarding performance on the SPDR S&P Small Cap Emerging Asia Pacific ETF, but the recipe for this ETF's success is simple: Emerging markets ETFs and equities must rebound this year, either dragging small-caps along or being led by small stocks. As we said, the allocations to Indonesia, Thailand and the Philippines are plus, though we'd like to see the Philippines weight boosted and India's presence in the fund reduced a tad.