“What’s not widely understood is that companies like Alibaba, and most of the other publicly traded emerging markets e-commerce companies, are not included in the major indexes and ETFs,” Carter said. “Here’s why: Most of the companies in the EMQQ Index have been backed by U.S. venture capital funds with U.S. institutional money.”
EMQQ will be reconstituted and rebalanced semi-annually in June and December, so the fund can add new IPOs that qualify under the benchmark’s liquidity and market-cap screens – the ETF only holds companies with over a $300 million market capiatlization that generate 50% or more of its revenue from internet or e-commerce activities in the emerging markets.
While the portfolio has a large China tilt, the ETF also includes some exposure to South Korea, South Africa, Russia, Argentina, Brazil and Taiwan.
Looking ahead, Carter believes that top line revenue growth will help the emerging-market strategy outperform U.S. markets.
“The S&P 500 had revenue growth of less than 5% in 2014,” Carter said. “The 40 plus companies in the EMQQ Index had revenue growth of 40%. That’s eight times as fast. The growth rate for e-commerce in emerging markets will certainly slow, but it should be several times as fast as the growth of revenue in the S&P 500 for a long, long time.”
For more information on the developing economies, visit our emerging markets category.
Max Chen contributed to this article.