Debuting on 07/06/2017, the smart beta exchange-traded fund Nuveen ESG Emerging Markets Equity ETF (NUEM – Free Report) provides investors with broad exposure to a broad category of emerging market ETFs.
What are smart beta ETFs?
The ETF industry has traditionally been dominated by market capitalization-weighted index-based products designed to represent the market or a specific segment of the market.
Investors who believe in market efficiency should consider market capitalization indices, as they replicate market returns in a cheap, convenient and transparent way.
On the other hand, some investors who believe that it is possible to beat the market with superior stock selection choose to invest in another class of funds that follow strategies without capital spending restrictions – popularly known as smart beta.
This type of index follows the same line of thinking, as it tries to pick stocks that have a better chance of risk-return performance; strategies that are not weighted by weighted constraints base selection on certain fundamental characteristics, or a mixture of such characteristics.
Although this space offers a number of choices to investors, including the simplest methodologies of equal weighting, fundamental weighting and volatility/momentum based weighting, not all of these strategies have managed to deliver superior results.
Fund sponsor and index
Under Nuveen’s management, NUEM has raised over $227.55 million in assets, making it one of the mid-sized ETFs in broad emerging market ETFs. This particular fund seeks to match the performance of the TIAA ESG Emerging Markets Equity Index before fees and expenses.
The TIAA ESG Emerging Markets Equity Index uses a rules-based methodology to arrive at a diversified portfolio of equity securities issued by companies located in emerging market countries that adhere to predetermined ESG, controversial business participation and low-carbon criteria .
Expenses and other expenses
Investors should also pay attention to the ETF’s expense ratio. Lower-cost products will perform better than higher-priced ones, assuming all other metrics remain the same.
Compared to most similar products in the space, this ETF has annual operating expenses of 0.35%.
Its 12-month trailing dividend yield is 1.74%.
Sector exposure and largest owners
ETFs offer diversified exposure and thus minimize the risk of individual stocks, but it’s still important to dig into the funds before investing. Most ETFs are very transparent products and many disclose their holdings on a daily basis.
Considering individual funds, Taiwan Semiconductor Man /tvd/ accounts for about 7.10% of the fund’s total assets, followed by Tencent Holdings Ltd /hkd/ and Alibaba Group Holding Lt /hkd/.
NUEM’s top 10 holdings account for about 26.85% of its total assets under management.
Performance and risk
So far this year, NUEM has returned roughly 9.08% and is down about -14.87% in the last year (as of 01/16/2023). Over the past 52 weeks, the fund has traded between $22.51 and $32.92.
The ETF has a beta of 0.71 and a standard deviation of 23.95% for the trailing three-year period. With around 220 holdings, it effectively diversifies company-specific risks.
Alternatives
The Nuveen ESG Emerging Markets Equity ETF is a reasonable option for investors looking to outperform the broad emerging market ETF market segment. However, there are other ETFs in the space that investors may want to consider.
IShares ESG Avare MSCI EAFE ETF (ESGD – Free report) tracks the MSCI EAFE ESG Focus Index and the iShares ESG Avare MSCI USA ETF (ESGU – Free Report) tracks the MSCI USA ESG Focus Index. iShares ESG Avare MSCI EAFE ETF has $7.21 billion in assets, iShares ESG Avare MSCI USA ETF has $20.53 billion. ESGD has an expense ratio of 0.20% and ESGU fees of 0.15%.
Investors looking for cheaper, less risky options should consider traditional market-cap-weighted ETFs that aim to match the returns of broad emerging market ETFs.
Essence
To learn more about this product and other ETFs, browse products that fit your investment goals, and read articles about the latest developments in the ETF investing universe, visit the Zacks ETF Center.
