Columbia Threadneedle Acquires Emerging Global AdvisorsAuthor: Kathryn Gaw
Global asset management firm Columbia Threadneedle Investments (CTI) has acquired New York’s Emerging Global Advisors (EGA), in a move which marks a major shift in Columbia’s portfolio.
EGA specializes in Exchange Traded Funds (ETFs) which track index performance in Emerging Markets, and currently acts as the investment advisor to nine emerging markets-focused ETFs. The total value of the EGA/CTI deal has not been disclosed.
The acquisition confirms CTI’s commitment to diversifying its emerging markets exposure and introducing more smart beta strategies. In early June, CTI launched a new suite of ETFs targeting beta investments in global equities. The three Columbia Beta Advantage ETFs are focused on sustainable global equity income, US equity income, and international equity income.
According to Colin Moore, Global Chief Investment Officer at Columbia Threadneedle Investments, the new strategies “have the potential to help advisors and their clients meet important investment goals, such as generating income, growing assets and managing volatility.”
Beta-driven funds (also referred to as passively managed funds) are popular in times of volatility, as they track market performance rather than focusing on one particular sector or industry. While alpha-driven (or ‘actively managed’) funds have the potential to deliver very high returns, they also come with a high level of risk, particularly when market volatility is being influenced by external factors which are hard to predict (for instance, the Brexit fallout in the UK).
Columbia’s new ETFs seek to minimize risk by following a custom-designed index which was devised by MSCI, in line with the funds’ overarching principles. It excludes any company with dividend yields of less than one percent, and ranks the remaining companies according to dividend yield, dividend growth and cash flow metrics.
This rules-based approach is similar to EGA’s investment strategy. EGA researches and designs its own portfolios, with an emphasis on transparency and cost efficiency, and its nine ETFs are focused on long-term emerging market equity returns.
This fund breakdown is as follows:
● EGShares Beyond BRICs ETF (BBRC) – this fund tracks the FTSE Beyond BRICS index, investing in both BRIC countries (Brazil, Russia, India and China), and stable emerging markets such as Poland, Qatar and Mexico. It returned +7.28% in the first quarter of 2016, but has lost 4.48% overall since inception.
● EGShares EM Core ex-China ETF (XCEM) – this fund follows EGA’s own index, and it is heavily weighted towards South Korea and Taiwan (which are considered to be developed markets by most indices), with almost 50% of the portfolio invested in financials and info tech. It is one of the company’s most successful funds, returning +8.98% since inception.
● EGShares EM Quality Dividend ETF (HILO) – this fund tracks the performance of no more than 50 hand-picked companies in emerging markets such as Brazil, Indonesia and Taiwan. Companies are only selected if they record dividends which are above the average yield of the EGAI Developing Markets Universe. Since inception, this fund has returned -5.50%.
● EGShares EM Strategic Opportunities ETF (EMSO) – by following the S&P Emerging Markets Strategic Index, this fund tracks five key sectors across 12 emerging markets. It has returned -0.15% since inception.
● EGShares Emerging Markets Consumer ETF (ECON) – this fund invests solely in consumer foods and services, by following the Dow Jones Emerging Markets Consumer Titans 30 Index. Since inception it has returned +2.97%.
● EGShares Emerging Markets Core ETF (EMCR) – mature companies are targeted by this fund, which mirrors the weightings of the S&P Emerging Markets Core Index. The fund has returned -2.11% since inception.
● EGShares India Consumer ETF (INCO) – India’s massive consumer market has fueled growth in this fund, which has returned an impressive +10.04% since its inception by focusing 81% of its portfolio on consumer goods.
● EGShares India Infrastructure ETF (INXX) – an infrastructure-only fund, this ETF tracks the Indxx India Infrastructure Index, and invests only in common stocks listed on the primary exchange of India, plus ADRs & GDRs. It has returned -8.81% since its inception in 2010.
● EGShares India Small Cap ETF (SCIN) – this fund targets small cap investments in India, with a slight emphasis on banks and financials. Despite a good year in 2013, it has been EGA’s worst performing fund, returning -5.66% since inception.
Last year EGA closed down two of its funds – the EGShares Blue Chip FT and the EGShares brazil Infrastructure ETF – in an effort to streamline its portfolio.
Since it was founded in May 2009, the firm has accumulated more than $900 million in assets under management, while Colombia Threadneedle has an AUM of more than $420 billion.