This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Vident International's Unique Methods Build Broader Index Funds

NEW YORK ( TheStreet) -- Finding new ways to construct broad index funds is becoming harder to do, but the new Vident International Equity Index Fund (VIDI)does exactly that.

The big idea is to build a proxy for investing outside the U.S. based on risk weighting the component holdings, as opposed to a simple market cap weighting used by many index funds like the iShares MSCI EAFE ETF (EFA).

The process begins with a liquidity screen across 35 developed and emerging markets. The countries are weighted by risk -- the less risky a country the greater its weight in the fund. The process for country weighting is proprietary, but Vident discloses that it considers growth, soundness of money, political stability and valuation.

Vident also considers momentum at the country level and prospects for growth at the corporate level.

Results of this process puts each country into quintiles. The top scorers get an overweight of 25% vs. a "baseline" portfolio; the second is over weighted by 12.5%; the third is equal weighted; the fourth is underweighted by 12.5% and the fifth is underweighted by 25%.

The process produces an index that is heaviest in Malaysia at 4.97%, Hong Kong at 4.78% and China at 4.09%. What Vident refers to as "emerging Asia" is the largest region in the fund at 27.4% -- twice the weight in the MSCI All Country ex U.S. World Index which, like EFA, is market cap weighted. VIDI's exposure to developed Europe is 25% vs. 45% for All Country World Index ex-U.S.; there are extreme differences for all the regions.

The index underlying VIDI has 999 holdings -- the largest being Samsung at 0.47% -- so there's no single stock risk reasonably taken by fund holders.

It is, of course, noteworthy that the portfolio construction process concludes that emerging markets are generally less risky than developed markets. Indeed, many Asian markets are on firmer footing in terms of debt levels, budget deficits and various growth metrics. However, this has likely been the case for years and did not prevent those markets from dropping as much as, or even more than, their developed counterparts.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
SYM TRADE IT LAST %CHG
VIDI $24.56 -1.00%
EFA $68.07 0.02%
AAPL $132.05 1.50%
FB $80.45 -0.12%
GOOG $543.01 0.69%

Markets

DOW 18,271.46 -14.28 -0.08%
S&P 500 2,130.82 +4.97 0.23%
NASDAQ 5,090.7940 +19.0510 0.38%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs