EMQQ, a $1.3bn top-performing emerging markets ETF focused on internet and e-commerce stocks, has been joined by a sibling fund that delivers essentially the same strategy but excluding stocks from China.
Kevin T. Carter, Founder and CEO of Big Tree Capital.
The Next Frontier Internet & Ecommerce ETF (FMQQ US) has been listed on NYSE Arca and comes with an expense ratio of 0.86%.
The indices underlying EMQQ and FMQQ were developed by Big Tree Capital, a privately held investment firm focused on emerging and frontier markets, while the ETFs are delivered by white-label ETF platform Exchange Traded Concepts.
As of 29 September, EMQQ has achieved a five-year return of 88.3%, notably higher than the 52.9% gain on the iShares Core MSCI Emerging Markets ETF (IEMG US).
Kevin T. Carter, Founder and CEO of Big Tree Capital, said: “We launched EMQQ in 2014 with the conviction that internet and e-commerce companies in the developing world represented the best way to capture the real growth of emerging markets – the emerging markets consumer – and we’ve been right.
“Today, nearly 90% of the world’s population under the age of 30 lives in emerging economies. By 2030, the global middle class is expected to swell to 5.5 billion people with consumption in emerging markets totaling $30 trillion – nearly half of the global total.
“This isn’t just a China story, as innovative companies are growing and going public at a fast rate in other parts of Asia, South America, Africa, and Eastern Europe.”
While FMQQ has been in development for some time, its introduction may also be viewed as timely by investors who wish to scale back their Chinese tech exposure in the wake of one of the toughest government crackdowns in decades.
China’s e-commerce market is also gigantic at more than four times the size of the rest of the emerging markets e-commerce space combined, highlighting the need for a diverse toolkit that allows investors to build emerging market portfolios with as much, or as little, China exposure as they desire.
Carter added: “We believe FMQQ can be an attractive alternative for investors who want to capture the budding opportunities in these “next frontier” markets and/or complement their Chinese tech allocations and balance out their current portfolio weightings.”
Methodology
The fund tracks the Next Frontier Internet and Ecommerce Index which selects its constituents from a universe of non-Chinese emerging market stocks with market capitalizations greater than $300 million and average daily trading volumes of at least $1m. American Depository Receipts are eligible for inclusion.
The methodology screens for companies that derive at least half of their profits, revenues, or assets from internet and e-commerce activities. Qualifying activities encompass themes such as internet services, internet retail, internet broadcasting, internet media, online advertising, online travel, online gaming, search engines, and social networks.
Securities that meet these criteria are selected to form the index and weighted by float-adjusted market capitalization subject to an individual security cap of 8% and an aggregate cap of 50% for stocks representing 5% or more. The index is reconstituted and rebalanced on a semi-annual basis.
FMQQ currently comprises 60 names. Stocks from South Korea account for a quarter (25.0%) of the total weight with Brazil (17.7%), Russia (14.1%), India (11.1%), and Argentina (8.2%) accounting for the next-largest country exposures.
Notable positions include Reliance Industries (8.8%), Sea (8.2%), Mercado Libre (7.8%), Yandex (6.8%), and Naver (6.2%).