The ETF Think Tank is dedicated to furthering ETF research for the benefit of advisors and investors. Due to this, we are constantly looking for investment opportunities while embracing ETF transparency to populate our database. We use the data within our ETF Security Master to create lists of unique ETF statistics like, Smart Cost, Concentration, Passive Influence, and other proprietary metrics. Our conversation about China listed equities with Kyle Bass during last Thursday’s Get Think Tanked Happy Hour inspired us to provide a new ETF Playlist this week, full of funds with the most exposure to State Owned Enterprises (SOE).
First, let’s define a SOE, and why investors should care about this issue. A SOE, for the purpose of this article, is a publicly traded equity that has significant ownership and influence from the government or state. The concern is that the government interest is often at odds with the interest of shareholders, and potentially the community in some regimes. Influence is the key factor, but also difficult to quantify. The factor we were able to accurately calculate for this ETF Playlist is the percentage, by weight, of companies with any shares held by the government of domicile. The list below shows the top 20 ETFs with state owned influence.
Many investors are surprised by the intersection of free markets and SOE in certain countries, like India and China. Additionally, the fact that WisdomTree India ex-State-Owned Enterprises Fund (IXSE) comes in second for exposure is a matter of definitions. WisdomTree excludes companies with 20% or higher SOE coverage; in our research, we set the limit at anything above 0%. It is difficult to define the risk or potential reward that State ownership could offer to investors in the short term versus the long term. That being said, the purpose of this ETF Playlist is to embrace the transparency of the structure and highlight the funds and geographies with the greatest exposures.
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