Country Indexes

There are several companies that collect price data and develop country indexes. It is an expanding area of ETF issuance, and will likely continue.

MSCI constructs a country index by listing every security on the market, and collects price data, outstanding shares, significant ownership, free float, and monthly trading volume. The stocks are categorized according to industry group, and individual companies are selected from each industry. MSCI methodology requires at least 85% representation of each industry group. Therefore, a country index captures at least 85% of the market capitalization of that country. Industry replication, more than any other single factor, is a key characteristic of a single country market index.

Currently, there are 21 separate iShares country funds, most of which are based on MSCI indexes (two are based on S&P Global Indexes). Some of the funds were originally issued as WEBS shares in 1996.

Other ETF providers are edging into the country fund marketplace. Most have a single country fund targeted to a specific audience. For example, Japan, China, and Russia funds have become popular.

State Street has had success in the global small cap market with its SPDR Russell/Nomura Small Cap Japan ETF (symbol: JSC). It was launched in November 2006 and has assets approaching $200

million. There were only a few small cap international ETFs at the time JSC was launched, and first-to-market ETFs always reap a good harvest if the product is decent.

The SPDR S&P China ETF (Symbol: GXC) is benchmarked to the S&P/Citigroup BMI China Index and is a good example of a niche emerging market offering. The China Index is float adjusted so that only those shares publicly available to investors are included in the index calculation. As of mid 2007, the GXC held approximately 125 securities. The largest position was China Mobile Ltd., with close to 12 percent of the NAV.

The Market Vectors Russia ETF (symbol: RSX) seeks to replicate as closely as possible, before fees and expenses, the performance of the DAXglobal Russia + Index. The index is a modified market capitalization weighted index comprising 30 publicly traded companies domiciled in Russia. Part of the fund holdings include common stocks and depositary receipts of selected companies in Russia that are listed for trading on global exchanges. Oil companies dominate the index.

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Lessons From The Intelligent Investor

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