Emerging market internet companies ETF hits the big time
Kevin Carter, pictured, is founder of EMQQ, an ETF focused US-listed emerging markets internet and e-commerce companies. Founded in 2014, and with just USD90 million under management, his time has come with year to date performance of over 30 per cent, and listings as one of the top performing Science/Tech funds in a variety of listings in the US.
“Ninety per cent of the world’s young people, those under 30, are in the emerging markets,” Carter explains. “When you peel the layers back the main story is about the consumer.
“Billions of people are moving up the economic ladder who want more stuff which might be clothing, more and better food, appliances, electronics, automobiles. The story is well documented. There is a giant wave of people around the world whose lives are getting better.”
Carter observes that a lot of people are trying to get exposure to that change. “But something is happening which I believe is unprecedented,” he says. “The great confluence, the consumer wave, is all of a sudden getting the smart phone which is pretty new – it was nine and half years ago that the first iPhone hit the shelves and you can see how much it has changed how we consume.”
Carter cites the UPS truck parked in his driveway – three years ago it was maybe one delivery a week and the family made trips to the store but now there could be 10 to 15 deliveries a week, and no trip to the store.
“We already had the internet and cars,” he says. “We can drive to the supermarket – It’s not something we couldn’t do before, it’s just easier, but for billions of people in the emerging markets, they didn’t have the internet until they got a smart phone and they didn’t have a car nor supermarkets to drive to.”
“This is a giant story of how they are leapfrogging how we think about consuming and it’s driving unprecedented growth for the sector with an average rate of growth of 40 per cent a year for last four years in the revenue of the companies within EMQQ.”
Carter has struggled with the emerging markets lack of popularity as investment vehicles over the last few years. “Emerging markets have been very much out of favour and I think that has been the biggest headwind and now they are back in favour and we have doubled in assets over last few months as the story starts to take off,” he says.
Carter’s business partner in EMQQ is Burton Malkiel, an American economist and author of several books, including A Random Walk Down Wall St, but one in particular on China, From Wall St to the Great Wall which started the research work on the emerging markets ETF.
“There are some big problems with emerging markets and in particular emerging markets ETFs,” Carter explains. “The biggest problem is that the emerging market companies that dominate the indexes are largely state-owned enterprises which are not run for investors, not trying to make money for shareholders.”
The other problem, which Carter describes as ‘salt in the wound’, is that successful emerging market companies want to list in the US. He cites the example of Baidu, the Chinese version of Google.
“Because it trades in the US and because they have US venture capital investors such as Ivy League endowments providing them with capital, they want to list on the best and most transparent exchanges. So all this growth and entrepreneurship gets left out of the emerging markets indexes. The largest emerging market fund doesn’t own Alibaba or Baidu. I created my own index of all emerging market internet and e-commerce companies listed in the US to get around the problem.”