A New Emerging Markets ETF With A Volatility Focus

A primary concern of advisors and investors considering emerging markets equities and exchange traded funds is the seemingly inherent volatility that traditionally accompanies such investments. Some ETFs aim to mitigate that problem.

Add the new Victory CEMP Emerging Market Volatility Wtd Index ETF CEZ to that list. The Victory CEMP Emerging Market Volatility Wtd Index ETF, which debuted Wednesday, follows a volatility-weighted index.

“The CEMP Indexes seek to improve an investor’s ability to outperform traditional indexing strategies through a strategic beta approach that combines fundamental criteria with volatility weighting of individual securities, which can lead to broader diversification than market cap weighting,” according to a statement issued by Ohio-based Victory Capital, the parent company of CEMP.

That index starts with the entire universe of emerging markets stocks and whittles the group down to the 500 largest by market value. From there, the stocks are weighted by their 180-day trailing standard deviation. To be precise, CEZ currently holds 499 stocks. The average market capitalization of CEZ's member firms is $10.3 billion.

As a volatility-fighting emerging markets ETF, CEZ's country lineup is not surprising with traditionally low beta Taiwan commanding an allocation of 11.9 percent. China and South Korea, another historically low beta emerging market, follow at 11.5 percent and 9.7 percent, respectively. India is the only other nation with a weight of above nine percent in CEZ. Conversely, usually volatile Brazilian and Russian stocks combine for just 4.8 percent of the new ETF's weight. In total, CEZ features exposure to 22 developing economies.

CEZ's top 10 holdings combine for just over five percent of the ETF's weight, indicating single-stock risk is not an issue for the new fund.

“Emerging markets account for a larger share of the global economy than they have in the recent past and represent a great investment opportunity,” said Stephen Hammers, Chief Investment Officer for Victory’s CEMP franchise, in the statement.

Victory Capital, which has $33.1 billion in assets under management, sponsors 11 ETFs and 14 mutual funds.