EMQQ: Investing In What McKinsey Calls The Biggest Growth Story Of Our Time

June 05, 2017

[This ETF Industry Perspective is sponsored by EMQQ.]

 

In 2014, Kevin Carter ushered in the Emerging Markets Internet & Ecommerce ETF (EMQQ). Today the fund has $103 million in assets under management and is the sole ETF to focus specifically on internet and e-commerce companies that primarily serve emerging markets. The fund’s goal is to capture stock market performance that is driven by growing internet access due to smartphones and rising income for consumers in the developing world, which Carter maintains is an unprecedented growth story. Here, we discuss the investment case for EMQQ and what it can add to a portfolio.

How is the EMQQ index constructed?

It’s a rules-based index. Companies need to derive at least half of their revenue from internet or e-commerce activities in emerging markets. That doesn’t mean they have to be headquartered in emerging markets, and it doesn’t mean they have to be listed in emerging markets. And they have to have a market cap of $300 million and trade $1.5 million a day in terms of trading volume. The index is rebalanced twice a year, in June and December.

What is the investment case for EMQQ, and what is “the great confluence”?

The investment case is simple—it’s almost certainly the fastest-growing sector in the world today. That growth is being driven by “the great confluence,” the first element of which is the rise of the emerging market consumer. McKinsey calls the rise of consumption in the developing world “the greatest growth opportunity in the history of capitalism.” There are billions of people moving on up and joining the consumer class, and as they do, they want a toaster and a pair of Nike’s. They want a television and they want a car. This is not news. It’s been well-documented, and most emerging market investors are aware of this important secular trend.

The second element is the smartphone. Smartphones are a relatively new thing in the developed world. I think I probably got my first iPhone in 2009. Now, I can’t imagine a world without one.  The Economist has labeled the smartphone “the defining technology of our age” and predicts that by 2020, 80% of the world will “have a supercomputer in their pockets.” As smartphones get cheaper and cheaper, they become more and more affordable. In some markets—like India—you can get a new smartphone for as little as $50, which is critical, because an $800 iPhone is simply not affordable in the developing world.

The third element of this confluence is high-speed mobile internet access. We have had access to high-speed internet via cable for a long time and take high-speed internet access for granted. But there is no cable in western China or India or Africa. So when a person in Chengdu or Nairobi gets a smartphone, it’s likely the first time they’ve had access to the internet.

Think about how the smartphone and mobile internet access have changed our consumption patterns. My family used to go to Target several times a week. It was easy to do that. We have an SUV, and the store is only a few miles away on nicely paved roads. Today we go to Target maybe once a month. Instead, white and brown trucks come to our house—often several times in a single day.

 

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