Due to the high-flying status of Chinese Internet stocks such as Alibaba (NYSE: BABA), Vipshop Holdings (NYSE: VIPS) and JD.com (NasdaqGS: JD), U.S. investors are well-acquainted with the potential of the Chinese Internet sector.
Those investors have also become increasingly aware of the utility of several exchange traded funds that offer significant exposure to Chinese Internet stocks, but opportunity with emerging markets Internet and e-commerce stocks is not confined to China. A new ETF can help investors broaden their emerging markets Internet equity horizons. [China Internet ETF Looking Good]
Californian-based Big Tree Capital introduced EMQQ (NYSEArca: EMQQ), the first broad-based emerging markets Internet and e-commerce ETF, Thursday. EMQQ tracks the Emerging Markets Internet & Ecommerce Index (EMQQi), which Big Tree licensed to Exchange Traded Concepts, the sponsor of EMQQ.
Home to 42 stocks, the Emerging Markets Internet & Ecommerce Index devotes a significant portion of its weight to Chinese Internet names, including Alibaba, Tencent Holdings (OTC: TCEHY), JD.com. Baidu (NasdaqGS: BIDU) and Vipshop. Those stocks combine for a third of the index’s weight.
However, EMQQ and its underlying index are far from dedicated China plays. Featured among the index’s top-10 holdings are South Africa’s Naspers, which owns a stake in Tencent, South Korea’s Naver Corp., Russia’s Yandex (NasdaqGS: YNDX) and Argentina’s MercadoLibre (NasdaqGS: MELI). Yandex has been deemed “the Google of Russia” while MercadoLibre has drawn comparisons to eBay (NasdaqGS: EBAY).
Alibaba and Baidu are just two of the names that underscore the utility of a dedicated emerging markets Internet ETF, such as EMQQ. Major index providers, such as MSCI and FTSE Group, require companies to be listed in their home markets. That restriction explains why Alibaba and Baidu, despite their heft and exciting performances, do not appear in major, diversified emerging markets ETFs such as the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM). [This ETF Should Hold Alibaba]
“The Ecommerce sector is one of the fastest growing sectors in Emerging Markets, but to date the major Emerging Markets ETFs have offered investors little or no exposure to the leading companies, including Alibaba, Baidu, and Youku in China, Yandex and Qiwi in Russia, Mercado Libre in Argentina, and MakeMyTrip in India,” said Big Tree CEO Kevin Carter in a statement. “Our index gives investors that exposure.”
EMQQ also helps investors dodge the risks associated with investing state-owned enterprises, such as goliath Chinese banks and Latin American energy producers.
Of the 42 stocks in EMQQ, 31 are U.S. venture capital-backed and 31 trade on the NYSE or NASDAQ exchanges. While state-owned enterprises (SOEs) make up about 30 percent of the two largest Emerging Markets ETFs currently on the market1, there are no SOEs in EMQQ, according to the statement.
EMQQi Top Holdings
Table Courtesy: EMQQi Index Committee
Tom Lydon’s clients own shares of EEM. Todd Shriber owns shares of Alibaba.