A set of exchanged-traded funds aims to give U.S. investors exposure to single foreign stocks that aren't easily accessible, the latest innovation in the increasingly saturated $7 trillion ETF industry.
Roundhill Financial is planning the TRAX Samsung Shares and TRAX Saudi Aramco Shares ETFs to correspond with the performance of Samsung Electronics and Saudi Aramco, according to a Friday
"This might be an easier way to get exposure," said Amrita Nandakumar, president of Vident Investment Advisory, in an interview. "Issuers are going to be serving the market and coming up with those names that they think investors are going to find interesting."
ETF issuers have rushed to introduce single-security funds after the first ones debuted in the U.S. last month. Many of the products that have begun trading offer leveraged or inverse exposure to the daily performance of single U.S. equities. Roundhill's planned ETFs are different in that they would offer one-to-one exposure to overseas companies, but they're an example of one of many
Roundhill's products would invest in swaps and other financial instruments. It may also invest in the underlying stock, according to the filing.
"This is potentially a very clever way to offer exposure in well-known foreign companies to U.S. investors," said Steve Sosnick, chief strategist at Interactive Brokers.
But it's not clear if the planned funds would pass muster with the SEC — foreign companies that don't offer American depository receipts don't need to follow U.S. reporting standards, so the planned products appear to offer a work-around to U.S. listing rules, he said.
If the SEC doesn't block the products from listing, that "would open a Pandora's box," Sosnick said, paving the way for ETFs that track other foreign securities with high investor interest, like Chinese stocks that are being delisted in the U.S..
The SEC declined to comment.
