Tapping into Former State-Owned Enterprises

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

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).

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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.

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