Exchange Traded Funds (ETFs)

Tapping into Former State-Owned Enterprises

A relief rally in emerging market equities occurred once former Vice President Joe Biden appeared to win the election, a divided Congress seemed assured with Republicans positioned to retain the Senate and Democrats controlling the House, while an erratic and protectionist trade policy, especially vis a vis China, of the past four years likely to be replaced by a steady one.

What President-elect Biden will do remains to be seen, but some analysts noted that a desire to decouple the United States from its supply chains in China is prevalent on both sides of the political aisle in Washington and predict he will not reverse all of President Trump’s trade policies. Instead, he will likely pursue a more measured and multilateral approach with regards to negotiations with President Xi Jinping.

Since such an approach might impel investors to become more confident in emerging markets, it is time to turn our attention to the WisdomTree EM ex-State-Owned Enterprises (NYSEARCA: XSOE) exchange-traded fund (ETF). Driven by the notion that private companies perform better than those owned by the government, the fund tracks a market-cap-weighted index of emerging-market companies, excluding state-owned enterprises (SOE). The fund’s managers define an SOE as a company that has more than 20% government ownership, and attempt to provide a broad exposure to emerging markets.

Some of this fund’s top holdings include Alibaba Group Holding Ltd. (NYSE: BABA), Tencent Holdings Ltd. (OTCMKTS:TCTZF), Taiwan Semiconductor Manufacturing Co., Ltd. (NYSE: TSM), Samsung Electronics Co., Ltd. (KRX:005930), Meituan Class B (OTCMKTS: MPNGF), Naspers Limited Class N (OTCMKTS:NPSNY), Reliance Industries Limited Sponsored GDR 144A (NSE:RELIANCE) and JD.com, Inc. Sponsored ADR Class A (NASDAQ: JD).

This fund’s performance has been relatively strong, even when including the damage done by the COVID-19 pandemic. As of Dec. 22, XSOE has been up 2.81% over the past month and up 15.01% for the past three months. It currently is up 23.91% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $3.34 billion in assets under management and has an expense ratio of 0.32%.

In short, while XSOE does provide an investor with a chance to tap into the world of emerging markets, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.