Exchange Traded Concepts has launched EMQQ, the first broad-based emerging markets internet and e-commerce exchange traded fund (ETF).
The new fund is designed to give investors exposure to the fast-growing Internet and e-commerce sectors in Emerging Markets. Unlike the largest existing Emerging Market ETFs, EMQQ includes major e-commerce companies like Alibaba, Baidu and Yandex, among others.
EMQQ seeks to track, before fees and expenses, the performance of EMQQ The Emerging Markets Internet and e-commerce Index, a new index created by Big Tree Capital, an investment firm focused on Emerging and Frontier Markets.
“The e-commerce sector is one of the fastest growing sectors in Emerging Markets, but to date the major Emerging Markets ETFs have offered investors little or no exposure to the leading companies, including Alibaba, Baidu, and Youku in China, Yandex and Qiwi in Russia, Mercado Libre in Argentina, and MakeMyTrip in India,” says Kevin Carter, CEO. “Our index gives investors that exposure.”
The Index currently comprises 42 companies. Among the ten largest holdings are Alibaba (based in China; listed on the NYSE), Tencent (based in China; listed on the Hong Kong Stock Exchange), Naspers Holdings Ltd (based in South Africa; listed on the Johannesburg Stock Exchange) JD.com (based in China; listed on NASDAQ) Baidu (based in China; listed on NASDAQ), and Naver Corp. (based in South Korea; listed on the Korea Exchange). Another top-ten holding, Yandex, known as the “Google of Russia”, is headquartered in the Netherlands and trades on NASDAQ.
Carter notes that because of investment restrictions that require companies to be listed in their home markets, many of the major Emerging Markets indexes exclude companies like those listed above, which are often the biggest and fastest growing Internet and e-commerce companies. Of the 42 stocks in EMQQ, 31 are US venture capital-backed and 31 trade on the NYSE or NASDAQ exchanges. While state-owned enterprises (SOEs) make up about 30 per cent of the two largest Emerging Markets ETFs currently on the market1, there are no SOEs in EMQQ.
“The indexes used by the biggest Emerging Markets ETFs have lots of differences from the index tracked by EMQQ,” says Carter. “They hold hundreds of state-owned companies including massive banks and oil companies, while most of Internet and e-commerce companies are excluded. The EMQQ index helps investors get more exposure to the growth of online consumption in the developing world.”
Many economists believe that the future of Emerging Markets growth will be driven in large part by the growth of a consumer-oriented middle class, with Internet business models bypassing traditional approaches to consumption. At the same time, Emerging Markets generally continue to demonstrate higher economic growth than their developed counterparts, with younger populations and, in many cases, less debt.
“In spite of all the discussion about the Emerging Markets, in our view US investors remain underweighted to this asset class,” says Carter, noting that Emerging Markets comprise 50 per cent of global GDP and 80 per cent of the world’s population, but make up just 2.5 per cent of the average US investor’s portfolio
