After a quiet spring, the ETF world is bursting with a slew of new product launches or fresh filings for proposed ETFs. This seems to be the case for the issuer Global X as well.
After filing for a Saudi Arabia based ETF in February and launching two products GURU International Index ETF (GURI) and GURU Small Cap Index ETF (GURX) in March, the issuer has filed for two ETFs focusing on different asset classes.
The first product -- Global X Emerging & Frontier Bond ETF -- looks to target the emerging & frontier market bond space, while the second -- Global X Commodities Strategy ETF -- looks to offer a diversified bet on commodities.
Though some key information, including expense ratio and holdings were not released, we have highlighted some of the main points for both the proposed funds below.
Global X Emerging & Frontier Bond ETF in Focus
The proposed fund in focus seeks to provide income as well as capital appreciation from an actively managed portfolio of non-USD denominated fixed income securities, although not targeting any particular benchmark.
The fund expects to achieve this by investing in a diversified portfolio of bonds of varying maturities issued by government, corporate and/or other issuers from emerging and frontier markets. However, the fund might have a combination of both investment grade and non-investment grade securities.
As far as geographic concentration is concerned, the fund seeks to invest in debt instruments from regions such as Asia, Latin America, Europe, the Middle East, and Africa.
The fund, if approved, can be a good choice for yield hungry investors willing to extend their reach beyond the U.S. and European bonds. Ultra low interest rates within the U.S. and Europe are prompting investors to search for better options outside these regions (read: 3 Long Term Bond ETFs Surging as Rates Stay Low).
However, investors should keep in mind the risks inherent in investing in emerging and frontier markets. Moreover, investing in non-USD denominated bonds will expose the fund to foreign currency risk as well.
There are only a handful of bond ETFs focused on the emerging market bond space, while none focusing on the frontier markets. Among the most popular is the iShares JP Morgan USD Emerging Markets Bond ETF EMB.
The fund manages an asset base of $5 billion, while charging investors 60 basis points as fees. The fund tracks the J.P. Morgan EMBI Global Core Index, holding U.S. dollar-denominated government bonds issued by emerging market countries.
Most of the other funds in this emerging market bond space hold U.S. dollar denominated funds. This might give some room for this fund to accumulate assets, though it still looks to be a tough task to gain share in the space with very low investor interest (read: Frontier Market ETF Leading Emerging Market Rally).
Global X Commodities Strategy ETF in Focus
As per the SEC filing, the fund seeks to actively provide returns greater than its benchmark -- Credit Suisse Composite Commodities Index. However, the fund will not directly invest in commodities futures or commodity-linked instruments and would rather gain exposure by investing in its subsidiary.
The benchmark seeks to offer exposure to multiple sectors such as energy, industrial metals, precious metals, and agricultural commodities, by building only long positions in commodities.
Commodities could be a good bet for investors who believe that a rising global economy will necessarily spur demand for commodities leading to higher prices. Additionally, commodities are witnessing a declining correlation with equities, which is expected to provide better portfolio diversification (read: 4 Great Reasons to buy Commodity ETFs Now).
However, investors should keep in mind that any further concerns over a slump in the emerging markets or a strong dollar could easily put the performance of commodity ETFs in jeopardy.
The Commodities ETF space is flooded with products ranging from targeted bets on specific commodities like gold, silver, platinum and natural gas to broad-based investments (see all the possible competitors in this list of Commodity ETFs).
Funds such as PowerShares DB Commodity Index Tracking Fund DBC, PowerShares DB Agriculture Fund DBA, iShares GSCI Commodity-Indexed Trust and United States Commodity Index Fund USCI might be big competitors for this Commodities Strategy ETF.
Given the extremely crowded commodities space, it might be a shaky road for this ETF, unless the fund's active strategy can pocket extra gains to attract investors.
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PWRSH-DB COMDTY DBC: ETF Research Reports
PWRSH-DB AGRIC DBA: ETF Research Reports
US-COMMODITY IF USCI: ETF Research Reports
GLBL-X GURU INT (GURI): ETF Research Reports
GLBL-X GURU SC (GURX): ETF Research Reports
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