May you live in interesting times is famously a curse, but Kevin Carter, founder of EMQQ, has certainly achieved that with his emerging market technology ETF which he launched first in the US, five and a half years ago, and in the UK in 2018.
The ETFs are the same group of stocks and currently hold USD600 million in the US, and USD50 million in Europe.
Performance over that five and a half year period has been volatile, susceptible as it is to the vicissitudes of the wider macro-economic environment, trade wars and now the Covid-19 pandemic.
Over the five years since launch, EMQQ has achieved 60 per cent and the European version is up 14.8 per cent year to date and 36 per cent year on year. Since inception its been the number one performing ETF in the emerging market sector but it does have a very specific set of stocks – technology, and while not an actively managed ETF, it’s an active bet, as Carter describes it.
“If you buy it you are going way from the traditional broad emerging manager indices,” Carter says.
The index is concentrated on Internet and e-commerce companies in the developing world.
“The rules are pretty simple,” Carter says. “You have to be an emerging market internet company. We don’t care where you are or what stock exchange you trade on. The question is where is the revenue coming from and that’s it. If you meet that criteria then we apply minimum market capitalisation and liquidity screens to makes sure the stocks are big enough to buy.”
The index, which currently contains 77 stocks, is rebalanced in June and December.
Historically, Carter has seen a variety of performance experiences, with 2017 proving a great year, 2018 seeing all-time highs at the outset but then President Trump’s trade war with China had its impact, leaving the fund down 30 per cent at the end of 2018.
The European launch came in 2018, with what Carter calls ‘a fresh start’.
2019 went off like a rocket with performance up 30 per cent in the first four months until trade negotiations broke down and the fund gave it back.
The fourth quarter of 2019 saw rioting in the streets of Hong Kong and anti-American feeling demonstrated through the burning of a Houston Rockets basketball jersey.
The resulting spat, fuelled by social media, saw the Chinese TV stations and the Alibaba website dropping broadcasts and merchandise and Carter commented that relations couldn’t get any worse.
“Sentiment is very important in the stockmarket,” Carter says. “You pay a high price for a cheery consensus.”
By October everyone was bearish on the sector but EMQQ ended up 34 per cent and, as Carter says: “Finally it was fun to be us again.”
2020 opened and Carter says: “Now we have something much worse than the burning of basketball jerseys – now we have a situation where if you touch something you might die.”
With all business meetings shut down, schools and business closed, the internet and ecommerce has performed extremely well.
“When the coronavirus comes to town, you lock yourself in and do everything on the internet,” Carter says.
“In addition to boosting certain internet models, other parts of the story have gotten a structural shift and forced adoption such as remote learning or office buildings emptying and everyone working remotely and now people are saying I am never going back to the office.”
It might be the right place at the right time for EMQQ but Carter struggles with his latest round of success.
“I think that I feel I am still struggling with how to talk about it because it is a terrible thing and people are dying but it is a boost to things I am involved with which gives me discomfort.”
Quoting the COO of Mercado Libre, a stock that sits in the EMQQ portfolio, Carter says that digitalisation will stabilise at a much higher level going forwad.
In the 10 years that ended in December 2019, the companies in EMQQ had an average annual growth rate of 38 per cent.
“It was already the fastest growing sector in the world and maybe ever,” Carter says.