emerging market core portfolios · 12/11/2012 · data as of august 31, 2012. msci brazil index...

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EMERGING MARKET CORE PORTFOLIOS Separating from the crowd

155 W 19th St. New York, NY 10011 | +1 888 800 4347 | www.egshares.com

© 2012 Emerging Global Advisors, LLC — All Rights Reserved. For Investment Professional Use Only.

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DISCLOSURES

Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds

before investing. To obtain a prospectus containing this and other important information, please call +1 888

800 4347 or visit EGShares.com to view or download a prospectus. To obtain a prospectus for WisdomTree’s

funds, please call 1-866-909-WISE (9473) or visit wisdomtree.com to view or download a prospectus online.

Read the prospectus carefully before investing.

Emerging market investments involve risk of capital loss from unfavorable fluctuation in currency values, from

differences in generally accepted accounting principles, from economic or political instability in other nations or

increased volatility, and lower trading volume. The value of an investment denominated in a foreign currency could

change significantly as foreign currencies strengthen or weaken relative to the U.S. dollar.

These funds are non-diversified and, as a result, may have greater volatility than diversified -funds. These funds will

concentrate their investments in issuers of one or more particular industries to the same extent that the underlying

index. Concentration risk results from maintaining exposure to issuers conducting business in a specific industry. In

certain circumstances, these funds might not be able to dispose of certain holdings quickly or at prices that represent

true market value preventing them from tracking the underlying index. As ETFs, fund shares are not individually

redeemable securities. There is no assurance that an active trading market for fund shares will develop or be

maintained.

Small cap and mid cap companies generally will have greater volatility in price than the stocks of large companies due

to limited product lines or resources, or a dependency upon a particular market niche.

The statements and opinions expressed are those of the author and are as of the date of this report. All information is

historical and not indicative of future results, and subject to change. Reader should not assume that an investment in

the securities mentioned above was or would be profitable in the future. This information is not a recommendation to

buy or sell. Past performance does not guarantee future results.

Shares are not individually redeemable and owners of the shares may acquire those shares from the Funds

and tender those shares for redemption to the Fund in Creation Units only, typically consisting of

aggregations of 50,000 shares.

EGShares and WisdomTree funds are distributed by ALPS Distributors Inc.

EGS001096 Expires 12/31/13


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DEFINITIONS

Beta is a measure of an asset´s sensitivity to an underlying index or factor. For example, an asset with beta of 1.2 would be expected to return

12 percent if the market returned 10 percent, and -12 percent if the market returned -10 percent. Beta is computed as an asset's correlation

with the index times the ratio of the asset's standard deviation to the index's standard deviation.

Beyond BRICs is a term used to identify the EM opportunity in the following 15 countries: Chile, Colombia, Czech Republic, Egypt, Hungary,

Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, South Africa, Thailand & Turkey.

BRIC is an acronym used to represent the nations of Brazil, Russia, India and China.

Correlation is a statistical measure of how two securities move in relation to each other.

Domestic demand is the total amount of money that is spent on goods and services by governments, businesses and consumers domiciled in

a given market. Throughout this document, it is a term used to represent what we believe are five sectors that are most influenced by local

growth: consumer staples, consumer discretionary, telecom, utilities and health care. It‟s important to note, however, that all ten sectors of an

economy are affected by domestic demand.

Frontier Markets is a country grouping used in this document to represent the following economies that are in the early stages of their

economic development: Afghanistan, Albania, Algeria, American Samoa, Andorra, Angola, Antigua and Barbuda, Argentina, Armenia, Aruba,

Azerbaijan, The Bahamas, Bahrain, Bangladesh, Barbados, Bermuda, Belarus, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina,

Botswana, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Cayman Islands, Central African

Republic, Chad, Channel Islands, Comoros, Congo, Costa Rica, Cote d'Ivoire, Croatia, Cuba, Curacao, Djibouti, Dominican Republic, Ecuador,

El Salvador, Equatorial Guinea, Eritrea, Estonia, Ethiopia, Faeroe Islands, Fiji, French Polynesia, Gabon, The Gambia, Georgia, Ghana,

Grenada, Guam, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kiribati,

Northern Korea, Kosovo, Kuwait, Kyrgyz Republic, Lao PDR, Latvia, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Lithuania, Macedonia,

Madagascar, Malawi, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Micronesia, Moldova, Mongolia, Mozambique, Myanmar,

Namibia, Nepal, New Caledonia, Nicaragua, Niger, Nigeria, Northern Mariana Islands, Oman, Pakistan, Palau, Panama, Papua New Guinea,

Paraguay, Puerto Rico, Qatar, Romania, Rwanda, Samoa, San Marino, Sao Tome, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone,

Sint Maarten, Slovak Republic, Slovenia, Solomon Islands, Somalia, South Sudan, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Martin (French

part), St. Vincent and the Grenadines, Sudan, Suriname, Swaziland, Syrian Arab Republic, Tajikistan, Tanzania, Timor-Leste, Togo, Tonga,

Trinidad and Tobago, Tunisia, Turkmenistan, Turks and Caicos Islands, Tuvalu, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan,

Vanuatu, Venezuela, RB, Vietnam, West Bank and Gaza, Yemen, Zambia, Zimbabwe.

MSCI Emerging Markets Index is an index that is designed to measure the equity market performance in global emerging markets. MSCI

makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained

herein. The MSCI data may not be further redistributed or used to create indices or financial products. This report is not approved or produced

by MSCI

Sharpe Ratio is a measure of risk-adjusted performance calculated by subtracting the risk-free rate from the rate of return for a portfolio and

dividing the result by the standard deviation of the portfolio returns.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. © 2012 Emerging Global Advisors, LLC — All Rights Reserved. For Investment Professional Use Only.

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TABLE OF CONTENTS

I. Emerging Market Status Quo: Allocation Without Implementation

II. Diversifying EM Core Holdings


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EMERGING MARKET STATUS QUO:

ALLOCATION WITHOUT IMPLEMENTATION


6 © 2012 Emerging Global Advisors, LLC — All Rights Reserved.

Conventional EM benchmarks have become de facto portfolios

Most global EM ETF assets are allocated to conventional EM benchmarks

EMERGING MARKET STATUS QUO: ALLOCATION WITHOUT

IMPLEMENTATION

Source: MSCI, Bloomberg data as of September 30, 2012. Reflects Vanguard‟s announced index changes on October 2, 2012.

U.S.-Listed Broad Global Emerging Market ETF Assets (in $ billions)

MSCI EM index aims to capture

85% of publicly available

total market capitalization

Over 800 constituents

More than 700 constituents have

less than 20 bps weight

MSCI EM Index

Over 750 constituents

More than 650 constituents have

less than 20 bps weight

FTSE Emerging Index FTSE

Emerging Index 57%

MSCI Emerging Markets Index 37%

All Others 6%

Total AUM: $102 Billion

For Investment Professional Use Only.


Conventional cap-weighted benchmarks reflect the history of EM growth

Consequence 1: Concentration in more mature emerging and advanced economies


IMPLEMENTATION

Taiwan

Developed 27%

BRIC 43%

EM Beyond BRIC 30%

Bloomberg data as of September 30, 2012. Weightings subject to change. The IMF graduated the South Korean and Taiwanese economies to advanced status in 1997. Emerging Global Advisors shares the IMF‟s classification of South Korea and Taiwan, and refers to them as „developed.‟

Developed 13%

BRIC 49%

EM Beyond BRIC 38%

South Korea

& Taiwan

MSCI EM Index FTSE Emerging Index



Consequence 2: Sector concentration includes the more mature sectors of Financials,

Energy & Materials (“FEM”)


IMPLEMENTATION

Financials 25%

Energy 13%

Materials 12%

Info Tech 14%

Consumer Staples

8%

Telecom 8%

Consumer Discretionary

8% Industrials

7% Utilities

4% Health Care

1%

Financials 27%

Energy 15%

Materials 12%

Info Tech 9% Consumer

Staples 10%

Telecom 10%


6% Industrials

6% Utilities 4%

Health Care 2%

Total “FEM” Exposure:

50%

Total “FEM” Exposure: 54%


MSCI EM Index FTSE Emerging Index

Bloomberg data as of September 30, 2012. Weightings subject to change.



Consequence 3: Certain industries may mature earlier in a country‟s development, crowding

out less

mature industries


IMPLEMENTATION

MSCI EM Index Industry Group Distribution


Insurance Div.

Financials Real

Estate

Semiconductor & Equipment

Technology Hardware

Software

Food & Beverage

Retailing Household & Personal Products

Automobiles & Components

Retailing Media Durables & Apparel

Consumer Services

Capital Goods Trans. Commercial & Professional Services

Pharma, Bio-tech & Life Sciences

0% 5% 10% 15% 20% 25%

Health Care

Utilities

Industrials

ConsumerDiscretionary

Telecom

ConsumerStaples

Materials

Energy

Info Tech

Financials


Energy

Telecom

Utilities

Materials

Banks



Developed

Markets

Many economies have followed a similar path

Emerging Markets

EMERGING MARKET STATUS QUO: ALLOCATION WITHOUT IMPLEMENTATION

Frontier

Markets

EGShares‟ graph. Data is hypothetical and based on concepts sourced from: “Emerging Markets Entering the Third Phase”, David Riedel, 2009.

Urbanizatio

n

Financial Infrastructure

& Exports

Domestic

Demand Agrarian

Maturation Elements


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EMERGING MARKET STATUS QUO: ALLOCATION WITHOUT IMPLEMENTATION

Conventional single country and dividend benchmarks have similar

characteristics

Past performance does not guarantee feature results.

Data as of August 31, 2012.

MSCI Brazil

Index

FTSE China 25

Index

Market Vectors

Russia Index

WisdomTree

India Earnings

Index

WisdomTree EM

Equity Income

Index

ETF Assets

Tracking The

Index

$7.3B $4.2B $1.7B $925M $4.1B

Broad

Dividend Broad Country

Financials, Energy

& Materials Sectors

Exposure

Consumer

Sectors Exposure

63%

79% 74%

57% 61%

17%

0%

7%

15%

5%


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DIVERSIFYING EM CORE HOLDINGS


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Emerging market industry concentration overview


EGShares Emerging Markets Core ETF tracks the S&P Emerging Markets Core Index,

which reduces industry group concentrations

Broad EM indices have more holdings, but greater industry concentration than the S&P 500

Index

EM INDICES

Bloomberg data as of September 30, 2012. Weightings subject to change. Global Industry Classification Standard (“GICS”) is a standardized classification system for equities developed jointly by MSCI and S&P which consists of 10 sectors, 24 industry groups, 68 industries and 154 sub-industries into which all major public companies have been categorized.

U.S. INDEX

Top 4 Industry Groups

37%


51%


56%


28%

Remaining 20 Industry Groups

63% Remaining 20

Industry Groups

49%


44%


72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

S&P 500 Index

(500 Constituents)

MSCI EM Index

(800+ Constituents)

FTSE Emerging Index

(700+ Constituents)

S&P EM Core Index

(116 Constituents)

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Rules-based process drives diversification

Key factors in building the diversified emerging markets core

Create eligible universe of

liquid names in emerging market

economies

Equal-weight

index constituents

Cap country

exposures

Focus on industry groups as index building blocks

rather than sectors


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Country comparison

S&P EM Core Index provides greater EM country exposure and no developed economy

holdings

The S&P EM Core Index

provides more EM

Beyond BRIC exposure

than the MSCI EM Index

and FTSE Emerging

Index.

Country Exposure Comparison

Developed

Developed

BRIC

BRIC

BRIC

EM Beyond BRIC EM

Beyond BRIC EM Beyond BRIC

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

MSCI EM Index FTSE Emerging Index S&P EM Core Index



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Bloomberg data as of September 30, 2012. *Weightings reflect index industry group exposures after applying country caps and are subject to change.


Equal-weight positions rather than market-cap weighted


Limit the impact of market cap dominance within industry groups

S&P EM Core Industry Group Exposure as a Result of Component Weighting Methods

Hypothetical industry group exposure of S&P EM

Core Index if market cap weighting individual

constituents

Actual industry group exposure of S&P EM Core

Index after equally weighting individual

constituents*

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Industry Groups Ranked By Aggregate Index Weight (Largest to Smallest)

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Sector comparison

S&P EM Core Index increases exposure to less mature emerging market

sectors

GICS Sector Exposure Comparison


0%

5%

10%

15%

20%

25%

30%

ConsumerStaples

ConsumerDiscretionary

Financials Industrials Utilities Info Tech Energy Health Care Materials Telecom

MSCI EM Index FTSE Emerging Index S&P EM Core Index

S&P EM Core Index increases exposure to less mature emerging market sectors

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Consumer Staples 17%


17%

Financials 16% Industrials 10%

Utilities 7%

Info Tech 7%

Energy 7%

Health Care 6%

Materials 6%

Telecom 5%

Key Statistics Top Index Country Weights Index Sector Weights

ETF Ticker (NYSE) EMCR China 15%

Bloomberg Index Ticker SPEMC

R South Africa 15%

Fund Inception Date 10/16/1

2 India 15%

Net Expenses* 0.70% Brazil 10%

Holdings 108 Russia 9%

Index Average Market

Cap $12.09B Chile 8%

Index Median Market

Cap $6.32B Malaysia 8%

Index Dividend Yield 2.22% Mexico 8%

Indonesia 4%

Turkey 3%

Bloomberg data as of September 30, 2012. Weightings subject to change. * Gross expenses of 1.20% are reimbursed to keep from exceeding 0.70% of net assets. This agreement will remain in effect and will be contractually binding at least until October 3, 2013.

EGShares EM Core ETF: EMCR

Consumer Staples

17%

Consumer Discretionar

y 17%

Financials 16%

Industrials 10%

Utilities 7%

Info Tech 7%

Energy 7%

Health Care 6%

Materials 6%

Telecom 5%

For More Information: Visit www.egshares.com

Call +1 888 800 4347

Email [email protected]

155 W 19th St. New York, NY 10011 | +1 888 800 4347 | www.egshares.com


emerging market core portfolios · 12/11/2012 · data as of august 31, 2012. msci brazil index...

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