New Emerging Internet ETF Fills Big EEM Void

November 21, 2014

A new ETF canvassing online life in the emerging markets really is a distinct idea.

A new emerging market ETF with a focus on Internet use in the developing world is more than a catchy idea targeting a high-growth sector.

On the contrary, the new fund, the EMQQ Emerging Markets Internet & Ecommerce ETF (EMQQ), fills a big void in the current holdings of the exchange-traded fund market’s two biggest ETFs focused on the emerging markets: the iShares MSCI Emerging Markets ETF (EEM | B-97) and the Vanguard FTSE Emerging Markets ETF (VWO | C-84).

EMQQ, the new ETF, holds the very companies mostly excluded from the MSCI- and FTSE-based indexes that underlie EEM and VWO, respectively, due to technicalities related to some Internet-linked firms operating in emerging markets that choose to list their shares solely in the U.S.

By the way, EMQQ comes from Big Tree Capital, a firm headed by indexing-industry veteran Kevin Carter. What’s more, Carter’s business partner is none other than Burton Malkiel, the Princeton economics professor and author of “A Random Walk Down Walk Street,” first published in 1973.

Currently, only five of EMQQ’s 42 holdings overlap with iShares’ EEM. The overlap with Vanguard’s VWO is only three holdings.

The overlaps include Internet giants like Hong Kong-listed Tencent and Johannesburg-listed Naspers. But any significant overlap ends there.

Alibaba & Baidu

The point is that besides Tencent and Naspers, there are many important U.S.-listed emerging ecommerce and e-tailing companies that get thrown to the curb in many broad emerging markets indexes.

In the China space, I’m talking about companies like Alibaba, Baidu, JD.com, Vipshop SINA and Ctrip.com, just to name a few. Alibaba and Baidu alone would represent pretty hefty weightings in EEM and VWO if they were included.

By the way, EMQQ caps any single security at 8 percent to allow diversification and to minimize single-security risk from a handful of behemoth Internet companies.

Beyond China, EMQQ also offers up important exposure to other key local Internet players within their respective regions that are also missing from EEM and VWO.

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