Sometimes, being different is good. That is true of emerging markets exchange-traded funds. Since the dawn of the ETF industry more than 20 years ago, advisors and investors have flocked to traditional, cap-weighted emerging markets ETFs.
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However, as investing in emerging economies has changed over the years, there has not been much evolution by standard emerging markets ETFs. The Emerging Markets Internet and Ecommerce ETF (The) (EMQQ) represents evolution in this corner of the ETF universe. EMQQ, which debuted in November 2014, tracks the EMQQ The Emerging Markets Internet and Ecommerce Index.
Sometimes Different Isn't A Bad Thing
EMQQ's components must derive their profits from e-commerce or Internet activities and include search engines, online retail, social networking, online video, e-payments, online gaming and online travel, according to the issuer.
As its name implies, EMQQ is a departure from old school emerging markets ETFs, which are typically saddled with hefty weights to state-controlled energy and financial services companies while featuring little exposure to Internet and technology names. In other words, EMQQ eschews stakes in the very companies that dragged traditional emerging markets ETFs lower over the past several years.
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Outpacing Other Emerging Market Indicators
In fact, EMQQ has outpaced the Vanguard Emerging Markets Stock Index Fd (VWO) and the iShares MSCI Emerging Markets Indx (ETF) (EEM) by an average of 340 basis points since coming to market in November 2014. Last year, EMQQ beat VWO and EEM, the two largest emerging markets ETFs by assets, by 20 percent.
Importantly, EMQQ can be used as a complement to or replacement for standard emerging markets ETFs such as EEM and VWO. Only two EMQQ's 47 equity holdings are also found in VWO. EMQQ's average correlation to EEM and VWO is 0.615.
Indeed, EMQQ is not the only emerging markets that is a departure from standard fare such as EEM and VWO. Older emerging markets ETFs that sought to differentiate themselves from EEM and VWO often focused on the emerging markets consumer, loading their portfolios up with, you guessed it, consumer staples and discretionary stocks.
A noble endeavor to be sure, but EMQQ's focus on emerging markets e-commerce opportunities gives investors exposure to faster growth than rival ETFs dedicated to the emerging markets consumer. Emerging markets e-commerce as growing five times as fast as consumption, a data point confirmed by EMQQ's holdings sporting revenue growth, on average of 40 percent, or five times more than the revenue growth of the components in a well-known emerging markets consumer ETF.
EMQQ is also compelling as a long-term position as China, the ETF's largest country weight, pushes to marry Internet and traditional sectors by bolstering its industrial Internet, Internet finance and e-commerce industries.
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