European thematic specialist Rize ETF has unveiled a new ETF investing in internet and e-commerce companies from developing countries.
Stuart Forbes, Co-Founder and Director at Rize ETF.
The Rize Emerging Market Internet and Ecommerce UCITS ETF has been listed on London Stock Exchange in US dollars (EMRJ LN) and pound sterling (EMRP LN) as well as on Deutsche Börse Xetra (ECOM GY) and Borsa Italiana (EMRJ IM) in euros.
The fund is also due to be rolled out on SIX Swiss Exchange in Swiss francs (EMRJ SW) in the near future.
The ETF seeks to tap into the emerging markets’ consumer growth story by targeting the investment opportunity linked to these countries’ burgeoning online economies.
According to Rize, the EM internet & e-commerce theme represents a megatrend that is being powered by several notable tailwinds including rising disposable incomes, urbanization, positive reform momentum, demographic changes, social connectivity, and the widespread adoption of digital devices.
Commenting on the launch, Stuart Forbes, Co-Founder and Director at Rize ETF, said: “We are excited to be launching our first regional thematic ETF, specifically targeting the rise of the emerging market digital consumer.
“The emerging world contains 22 of the world’s 37 megacities. More than half of the world’s population lives in emerging markets, including 86% of the world’s Millennials and 89% of the world’s Generation Z. In the years ahead, we are looking at two converging but mutually reinforcing megatrends: the internet as an incubator for technological innovation and e-commerce as a catalyst for behavioural change. We believe our new ETF is aptly positioned to capture this seminal opportunity.”
Investment approach
The ETF accesses the EM internet & e-commerce theme by tracking the Foxberry Emerging Market Internet & Ecommerce Index, an index co-developed by Rize, index administrator Foxberry, and research firm Euromonitor International.
The index selects its constituents from a universe of emerging market stocks with market capitalizations greater than $500 million and average daily turnovers above $2m.
Harnessing insights from Euromonitor, companies in the universe are assigned thematic relevance scores based on the percentage of revenue derived from nine sub-themes related to the headline internet & e-commerce theme. The nine sub-themes are digital commerce & online marketplaces; e-commerce services; social commerce; food, ride-hailing and on-demand retail; digital media, gaming and entertainment; online searches, adverts and classifieds; online travel; e-commerce logistics; and internet services.
Thematic relevance scores range from 1 to 5. Firms deriving less than 20% of their revenue from the sub-themes receive a score of 1, firms deriving between 20% and 40% of their revenue from the sub-themes receive a score of 2, and so on with firms deriving between 80% and 100% of their revenue from the sub-themes receiving the highest score of 5.
The index selects all constituents with thematic relevance scores of 2 or higher and weights them according to their scores while capping the weight of any single country at 25%. According to Rize, this weighting approach ensures the strategy never defaults to a proxy China fund.
Reconstitution and rebalancing occur semi-annually.
As of the end of March, the index had 57 constituents. Both South Korea and China had reached the maximum country caps of 25%, while the next-largest country exposures were Taiwan (9.0%), South Africa (8.4%), and Argentina (6.7%).
Notable positions included Mercadolibre (6.4%), International Games System (5.3%), Jumia Technologies (5.1%), Makemytrip (4.7%), Naspers (4.2%), Grupo Televisa (4.2%), and Prosus (3.9%).
The ETF comes with an expense ratio of 0.55%.
The main competitor to the new listing is the $230m EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (EMQQ LN). The most significant difference between this fund and the Rize ETF is that the former does not impose limits on country weights and, consequently, currently exhibits approximately 57% exposure to China.
To counter potential concerns from investors about this issue, the team behind EMQQ launched a new fund in January 2022 – the FMQQ Next Frontier Internet & Ecommerce ESG-S UCITS ETF (FMQQ) – which provides exposure to EM internet and e-commerce companies while excluding stocks from China.
Investors can blend allocations to EMQQ and FMQQ at ratios that align with their portfolio objectives and return projections. Both ETFs come with expense ratios of 0.86%.