The Virtus Glovista Emerging Markets ETF (EMEM) that debuted on Thursday builds its portfolio by emphasizing what countries are in favor based on the rules-based methodology underpinning its index.

The exchange-traded fund is a partnership between Virtus ETF Solutions, a multi-manager ETF sponsor and affiliate of Virtus Investment Partners, and Glovista Investments, the RIA that constructed the index based on a top-down, global-macro investment approach.

The index incorporates an investment universe of 15 large and liquid emerging-market countries. From there, it employs three different selection models—macroeconomic trends, bottom-up company specific fundamental analysis and relative price momentum—to flesh out the portfolio.

Macroeconomic trends include the economic growth, currencies, and monetary and fiscal policy within each country. The bottom-up approach looks at company-specific criteria such as net debt, total assets and price-earnings ratios. The momentum model analyzes absolute and relative price momentum and momentum reversal based on each country’s price index.

This three-model process identifies the top 10 emerging-market countries and chooses securities within those countries if they have free-float adjusted market capitalizations exceeding $750 million, as well as average daily trading volume of at least $500,000 over the prior three months. Securities from the bottom five countries are excluded from the index.

The EMEM fund limits single-country allocations to a maximum of 10 percent of the overall portfolio, and it will rebalance monthly.

“It is anticipated that this fund is more actively turned than, say, the MSCI EM Index,” says William Smalley, executive managing director of Virtus ETF Solutions. “It is intended to be dynamic—more 'systematic alpha' than pure passive.”

EMEM holds both individual stocks and exchange-traded products. As such, the iShares MSCI India ETF is the fund’s second largest holding out of the gate. Other than a money market fund that initially is this ETFs largest holding, the rest of the top 10 positions comprise companies from Taiwan, South Korea, South Africa, Indonesia, China, Russia and Chile.

The fund’s net expense ratio is 0.68 percent.