New Emerging-Market ETFs May Not Offer Anything New

NEW YORK ( TheStreet) -- ETF Provider VelocityShares, which is known primarily for levered funds and funds that track volatility and natural resources, is branching out with three new emerging-market funds:
  • VelocityShares Emerging Markets Depositary Receipt ETF (EMDR)
  • VelocityShares Russia Select Depositary Receipt ETF (RUDR)
  • VelocityShares Emerging Asia Depositary Receipt ETF (ASDR)

EMDR is a broad-based fund along the lines of the iShares MSCI Emerging Market ETF ( EEM). Like many broad-based funds, EMDR has heavy weightings in Brazil (20%), South Korea (16%), Russia (15%) and China (15%).

There are also no surprises at the sector level, with energy having the largest weighting, at 21%, followed by technology, at 20%, and financials at 17%. The larger individual holdings in the fund will be familiar to most investors, but it is worth noting that Samsung is the largest holding by far, at 10% of the fund. For comparison, Samsung accounts for only a 4% weighting in EEM.

The Russian market is dominated by energy companies, so RUDR has a big weighting (43%) in energy companies. It also has percentage weightings in the midteens for financials, telecom and materials.

Like many rival funds, RUDR's largest individual holdings are Gazprom (at 21%) and Sberbank (at 14%). The weightings of these two companies are similar to their weightings in the iShares MSCI Russia Capped ETF ( ERUS).

Lastly, there is ASDR, which like the other two VelocityShares funds, has plenty of competition, in this case from the iShares MSCI Emerging Markets Asia ETF ( EEMA).

Not surprisingly, ASDR's largest sector weighting is technology, but the sector's weighting of 43% is greater than in EEMA. ASDR has midteen weightings in telecom, energy and financials. EEMA has a more balanced 26% in financials and 23% in tech.

South Korea is the largest country in ASDR, at 34% of the fund, followed by 30% for China and 17% for Taiwan. The thing to be careful with here is ASDR's 21% allocation to Samsung.

A loss in competition, real or perceived, to Apple ( AAPL) would be devastating to ASDR, but not for EEMA, which has only a 6.5% weighting for Samsung.

The issue with these funds is that they don't bring anything new to the table for investors. As mentioned, ASDR has competition from EEMA, which only has $64 million in assets and rarely trades more than 20,000 shares. The low asset level and limited volume raises a reasonable doubt whether there is room for EEMA, let alone a second fund such as ASDR.

ERUS from iShares has a very respectable $248 million while the SPDR S&P Russia ETF ( RBL)languishes with just $34 million. A third fund would seem unlikely to get off the ground. And every large and medium-sized ETF provider already has a broad-based fund like EMDR.

I believe it will be very difficult for these funds to find an audience.

At the time of publication, Nusbaum had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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