Seven Single-Country ETFs from iShares on BATS

February 6, 2012 by  
Filed under Commentary, ETF IPOs (New ETFs)

BlackRock rolled out seven new single-country ETFs in late January.  Three are the first iShares products to individually target Denmark, Finland, and Norway.  Four others complement existing large cap offerings with small-cap exposure in Australia, Canada, Germany, and the U.K.

January was a busy month for BlackRock, which rolled out a dozen new iShares-branded international ETFs in the month.  Even more interesting, the listings were done on three different U.S. stock exchanges.

BlackRock’s first batch of new ETFs for 2012 went the traditional route through NYSE Arca, which typically gets the lion’s share of new ETF listings.  Two more iShares international ETFs emerged on the Nasdaq on January 19.

The third wave, consisting of seven more single-country ETFs, were the first ETFs with a primary listing on BATS Global Markets, the third largest stock exchange in the U.S.  iShares MSCI Norway Capped Investable Market Index Fund (ENOR) became the first BATS-listed ETF on January 24.  Six more ETFs followed two days later.

Here is the rundown on the three new Nordic country funds:

iShares MSCI Denmark Capped Investable Market Index Fund (EDEN) launched on January 26 with a 0.53% expense ratio.  The underlying MSCI Denmark IMI 25/50 Index is a custom, free float-adjusted market capitalization index.  Largest allocations among the 32 holdings are Novo Nordisk 23.1%, Danske Bank 7.3%, AP Moeller-Maersk 7.2%, Carlsberg 5.9%, and DSV 4.2%.  Sector representation includes Health Care 35.5%, Industrials 27.0%, Financials 15.8%, Consumer Staples 8.5%, and Materials 6.3%.  (EDEN overview)

iShares MSCI Finland Capped Investable Market Index Fund (EFNL) began trading on January 26 with an expense ratio of 0.53%.  The underlying MSCI Finland IMI 25/50 Index is a custom, free float-adjusted market capitalization index.  The fund has 43 holdings, led by Nokia with 15.9%, Sampo 9.1%, Fortum 8.5%, Kone 6.9%, and UPM-Kymmene 5.3%.  Sector breakdown includes Industrials 28.3%, Technology 16.9%, Materials 16.0%, and Financials 13.0%.  (EFNL overview)

iShares MSCI Norway Capped Investable Market Index Fund (ENOR) came out on January 24 with an expense ratio of 0.53%.  The underlying MSCI Norway IMI 25/50 Index is a custom, free float-adjusted market capitalization index.  The fund’s 52 holdings are topped by Statoil 20.6%, Telenor 7.5%, Seadrill 7.4%, DNB 6.7%, and Orkla 4.7%.  Top sector breakdown is Energy 50.1%, Financials 13.0%, Materials 9.1%, Telecommunications 7.5%, and Industrials 7.4%.  (ENOR overview)

Analysis/Opinion: Not so long ago that accessing the Nordic countries via ETFs was difficult.  While iShares MSCI Sweden (EWD) has been around for more than 15 years, it was the only choice until Global X FTSE Nordic Region ETF (GXF) arrived in August of 2009.  Fifteen months later, Global X added Global X FTSE Norway 30 ETF (NORW).

The MSCI 25/50 index names (pdf) refer to the requirement for registered investment companies (a tax category that includes ETFs) to not have more than a 25% weighting in a single stock and for the combined weights of all stocks with a greater than 5% weighting to not exceed 50% of the fund.  This makes customized indexes necessary for many smaller countries.  Even with the cap, EDEN, EFNL, and ENOR all have large weightings in their top constituents.  Additionally, sector representation should be considered before buying these funds.  ENOR has more than half its assets in Energy, EDEN has more than a third in Health Care, and EFNL has a 28% allocation to Industrials.

Here is the run down on the four new single-country small cap funds:

iShares MSCI Australia Small Cap Index Fund (EWAS) launched on January 26 with an expense ratio of 0.59%.  The underlying index is a free float-adjusted market cap weighted index targeting the bottom 14% of equity market capitalization in Australia.  The largest of the fund’s 206 holdings include APA Group 2.0%, Atlas Iron 1.9%, Commonwealth Property Office 1.9%, Treasury Wine Estates 1.8%, and UGL 1.7%.  Sector allocations include Materials 26.2%, Industrials 20.2%, Financials 13.2%, Consumer Discretionary 13.0%, and Energy 9.3%.  (EWAS overview)

iShares MSCI Canada Small Cap Index Fund (EWCS) launched on January 26 with an expense ratio of 0.59%.  The underlying index is a free float-adjusted market cap weighted index targeting the bottom 14% of equity market capitalization in Canada.  The largest of the 246 holdings include SXC Health Solutions 1.7%, Keyera 1.5%, Provident Energy 1.4%, Detour Gold 1.3%, and Quadra FNX Mining 1.3%.  Sector representation includes Materials 35.2%, Energy 26.7%, Financials 10.8%, Consumer Discretionary 7.9%, and Industrials 7.4%.  (EWCS overview)

iShares MSCI Germany Small Cap Index Fund(EWGS) launched on January 26 with an expense ratio of 0.59%.  The underlying index is a free float-adjusted market cap weighted index targeting the bottom 14% of equity market capitalization in Germany.  Largest of the 81 holdings include Bilfinger Berger 5.5%, MTU Aero Engines Holdings 4.6%, Symrise 4.3%, Rhoen-Klinikum 3.4%, and SGL Carbon 3.3%.  Sector representation includes Industrials 34.5%, Technology 14.5%, Consumer Discretionary 12.8%, Health Care 12.5%, and Materials 11.4%.  (EWGS overview)

iShares MSCI United Kingdom Small Cap Index Fund (EWUS) launched on January 26 with an expense ratio of 0.59%.  The underlying index is a free float-adjusted market cap weighted index targeting the bottom 14% of equity market capitalization in the United Kingdom.  Largest of the fund’s 268 holdings include IMI 1.6%, Croda International 1.5%, Pennon Group 1.4%, Informa 1.3%, and Gulf Keystone Petroleum 1.3%.  Sector representation includes Industrials 23.1%, Consumer Discretionary 21.2%, Financials 17.7%, Materials 10.0%, and Technology 9.4%.  (EWUS overview)

Analysis/Opinion: ETF investors can remember the tickers for these new ETFs by just adding an “S” to the end of the tickers of their large-cap counterparts (EWA, EWC, EWG, and EWU).  Since the latter group targets the largest 85% of the market cap within their respective countries, there should be little or no overlap between the existing large cap ETFs and the new small cap offerings.

The new offerings have two direct competitors: IQ Small Cap Australia ETF (KROO) and IQ Small Cap Canada ETF (CNDA).  They became the first ETFs in this space at their March 2010 launch.  Both may need to reduce their current 0.69% expense ratios in order to remain viable alternatives to EWAS and EWCS.

Disclosure covering writer, editor, and publisher:  Long EWU.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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