Market Overview

An Ideal ETF For Augmenting Traditional EM And Tech Exposure

An Ideal ETF For Augmenting Traditional EM And Tech Exposure

On Monday, nearly 60 exchange-traded funds hit all-time highs. A fair amount were internet or diversified technology funds, while a few were emerging markets ETFs.

Blurring the line between those categories is the Emerging Markets Internet and Ecommerce ETF (The)(NYSE: EMQQ). To be precise, EMQQ was one of 58 ETFs to hit an all-time high Monday, extending its year-to-date gain to about 14 percent.

While many ETFs, particularly those which carve out focused market niches, advertise themselves as augments or complements to traditional funds, EMQQ does not overtly position itself in such fashion. However, that argument certainly works in EMQQ's favor, as does stating that there are times when EMQQ soundly thumps its more traditional equivalents as it is doing this year.

Related Link: South China Morning Post: China Is "In Better Shape Than Many"

EMQQ's Advantage

Although it is not a dedicated China ETF, EMQQ is China heavy, but standard China ETFs lack the internet exposure found inn EMQQ, explaining why EMQQ is ahead of the largest U.S.-listed China ETF this year by more than 440 basis points.

Think that U.S. internet ETFs are glamorous because of, Inc. (NASDAQ: AMZN) and Facebook Inc (NASDAQ: FB)? Well, the First Trust DJ Internet Index Fund (ETF) (NYSE: FDN) devotes a combined 20 percent of its weight to those stocks and is still trailing EMQQ year-to-date by over 600 basis points.

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 is 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'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.

What's BABA Got To Do With It?

Alibaba Group Holding Ltd (NYSE: BABA)'s Lazarus act is one of the reason EMQQ is having a stellar year.

As Benzinga reported Monday, “This time last year, Alibaba’s stock appeared to be in free-fall and was trading well below its IPO price of $68/share. Fears surrounding the health of the Chinese economy were compounded by concerns over the reliability of Alibaba’s accounting. Earlier this year, investor fears seemed warranted when the SEC announced a probe of Alibaba’s accounting methods. The probe remains ongoing.”

However, Alibaba notched its first close over $100 since January 2015 yesterday, which is good for EMQQ as the ETF allocates 8.8 percent to Alibaba, making the Chinese e-commerce giant its largest holding.

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