Europe has welcomed a new thematic emerging markets ETF providing exposure to internet and e-commerce companies while excluding stocks from China.

Kevin T. Carter, Founder and CIO of EMQQ and FMQQ.

The FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF (FMQQ) has been listed on London Stock Exchange, Deutsche Börse Xetra, Borsa Italiana, and Euronext Paris.

The fund, which comes with an expense ratio of 0.86%, has been brought to market in collaboration with London-based white-label ETF platform HANetf.

FMQQ is the second UCITS ETF from Kevin T. Carter who also founded the $280 million EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ). EMQQ and FMQQ essentially deliver the same rules-based strategy with the former covering the full spectrum of emerging market countries (i.e. including China).

Since debuting at the end of 2018, EMQQ has undergone periods of significant outperformance compared to broad market emerging market indices, most notably in the months following March 2020 as internet and e-commerce companies thrived in the post-Covid-19 era. EMQQ soared 179.8% between 20 March 2020 and 17 February 2021 compared to 85.2% for the iShares Core MSCI Emerging Markets IMI Index UCITS ETF (EIMI).

Performance has since lagged, however, as Chinese tech companies (China accounts for roughly 55% of EMQQ’s exposure) have suffered under sweeping regulatory reforms implemented by Beijing in 2021.

The introduction of FMQQ may therefore be viewed as timely by investors who wish to scale back their Chinese tech exposure in the wake of one of the toughest government clampdowns in decades.

China’s e-commerce market is also gigantic – it is more than four times the size of the rest of the emerging markets e-commerce space combined, hence its outsized allocation in EMQQ – highlighting the need for tools that allow investors to construct emerging market portfolios with as much, or as little, China exposure as they desire.

Investors can now do exactly this by blending allocations to EMQQ and FMQQ at ratios that align with their portfolio objectives and return projections.

Commenting on the launch, Kevin T. Carter said: “We launched the EMQQ Emerging Markets Internet & Ecommerce UCITS ETF in 2018 with the conviction that internet and e-commerce companies in the developing world represented the best way to capture the real growth of emerging markets – the emerging markets consumer – and we’ve been right. Today, nearly 90% of the world’s population under the age of 30 lives in emerging economies. By 2030, the global middle class is expected to swell to 5.5 billion people with consumption in emerging markets totaling $30 trillion – nearly half of the global total.

“We believe FMQQ can be an attractive alternative for investors who want to capture the budding opportunities in ‘next frontier’ markets and/or complement their Chinese tech allocations and balance out their current portfolio weightings.”

Hector McNeil, co-CEO of HANetf, added: “We are delighted to launch FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF alongside its sister product on the HANetf platform. EMQQ has been a thematic favourite with investors in Europe, and we’re excited to offer European investors the opportunity to capture the potential growth in the emerging and frontier markets consumer story beyond China.”

Methodology

The fund tracks the FMQQ Next Frontier Internet & Ecommerce ESG Screened Index which selects its constituents from a universe of non-Chinese emerging market stocks, including American Depository Receipts, with market capitalizations greater than $300 million and average daily trading volumes of at least $1m. A light ESG screen ensures the removal of any companies that might have operations linked to weapons, tobacco, and coal.

The methodology then screens for companies that derive at least half of their profits, revenues, or assets from internet and e-commerce activities. Qualifying activities encompass themes such as internet services, internet retail, internet broadcasting, internet media, online advertising, online travel, online gaming, search engines, and social networks.

Securities that meet these criteria are selected to form the index and weighted by float-adjusted market capitalization subject to an individual security cap of 8% and an aggregate cap of 50% for stocks representing 5% or more. The index is reconstituted and rebalanced on a semi-annual basis.

FMQQ currently comprises 60 names with the most notable positions being Mercadolibre (9.2%), Naver (7.0%), Sea (6.7%), Nu (5.9%), Kakao (5.5%), Coupang (5.4%), and Yandex (4.6%).