Kevin T. Carter, founder and chief investment officer of EMQQ Global, isn't afraid to travel the world to see where the fastest growth will be coming from. As such, his goal is to create the best ETFs representing that growth.
Recently back from India and several adjoining countries, he says internet and e-commerce firms in that part of the world are booming. With billions of consumers getting smartphones and laptops for the first time, opportunities for fast growth abound.
Carter founded EMQQ Global in 2014 when he noticed how his personal consumption habits were affected by the use of a smartphone. Based in San Francisco, the firm today has about $700 million in assets across three ETFs in the U.S. and one fund in Europe.
While China has been a major player in the flagship EMQQ Emerging Markets Internet and Ecommerce ETF, India and other markets are quickly gaining traction.
Headquarters Are Irrelevant
Carter says that it doesn't matter where a company's headquarters are or where their stock is listed in the world. What matters is where the revenue comes from. The rules-based index that EMQQ and other funds are using selects companies with at least half of revenue from internet or e-commerce activities in emerging or frontier markets.
Other requirements include an initial market capitalization of $300 million or more. The stocks must also be liquid, which means they have at least a $1 million average daily turnover. American depositary receipts (ADRs) and other foreign-exchange-traded versions of the stocks are eligible to be included. The index is rebalanced semiannually, while the largest position cannot be more than 8%.
Prior to founding EMQQ Global and in collaboration with Princeton indexing legend Dr. Burton Malkiel, Carter created the first fractional-share firm, which was later acquired by E-Trade. Together with Burton, he also founded Active Index Advisors, which pioneered "direct indexing" and was also acquired. And in 2006, their focus shifted to China and emerging markets. They also launched several China-focused ETFs at Guggenheim Partners.
In an interview with Investor's Business Daily, Carter talks about the megatrends that are taking shape in emerging and frontier markets today, the ETFs he launched and his outlook for the emerging markets.
Best ETFs Mining For Emerging Markets
IBD: What was the premise for starting EMQQ and has your mission evolved over time?
Kevin Carter: The mission was to create the best emerging-markets ETF for long-term investors. When people had asked that question before, I would answer "That's easy: Buy the Emerging Markets Consumer ETF, which owned the largest traditional "consumer" stocks – food, clothing and retailers. Nine years ago I realized that it was the internet consumption companies that were driving the fastest growth in emerging markets — companies like Alibaba and MercadoLibre – which the database called "technology" companies.
Essentially, the premise is that three megatrends are happening at the same time. (First is) consumption. (There are) billions of new emerging-market consumers. Next, computers. Those consumers (are) getting their first-ever computer in the form of an Android-based smartphone. And lastly, the internet. Because most emerging markets were never wired, they are getting the internet for the first time.
And, because these new emerging-markets consumers don't have the traditional consumption infrastructure that we do (most do not have a bank account, debit cards or credit cards, etc.), they are "leapfrogging" and are even more digital than we are — especially in mobile-phone-based payments.
We remain confident that this is the best way for long-term investors in emerging markets. In terms of evolution, we launched FMQQ (which is EMQQ without China) in 2021 and India Internet & Ecommerce ETF in 2022. The same story, just different specific exposures.
Sources Of Growth For The Best ETFs
IBD: How much in assets under management do you have? When did you experience the greatest growth in assets and flows?
Carter: We currently have about $600 million in NYSE-listed EMQQ and another $200 million in a European UCITS (a type of investment fund). Sadly, investors do seem to add when the fund is or has outperformed and sell after declines. We had nearly $2.5 billion in total assets in early 2021.
IBD: Please describe your three ETFs.
Carter: EMQQ invests in all emerging-markets and frontier-markets internet companies — including China, which has the largest weight.
FMQQ is the same, without China. And INQQ just targets the India part of the broader story. Performance has been horrible for EMQQ over the past couple years, though we're up from our October 2022 lows. FMQQ and INQQ are also down meaningfully, though they have shorter records. EMQQ had outflows in 2022 while FMQQ and INQQ had small inflows.
IBD: What is your outlook for emerging markets, and specifically for the countries that are represented in your funds?
Carter: I do not make short-term predictions about the stock market, but I am bullish on the economic recovery of China post their removing Covid restrictions. And I am very bullish about how the EMQQ story is playing out in the rest of the portfolio in places like Brazil and India in particular. It's hard not to expect a ton of growth in the Indian internet and e-commerce market over the next two decades, and it's happening now. It reminds me of China 15 years ago.
New Developments In Best ETFs For Emerging Markets
IBD: What are some of the recent developments that you're seeing in emerging markets?
Carter: Mobile payments are exploding everywhere. India is both making iPhones now and as of (mid-April) has their first two stores in India. (Apple opened its first store in China 15 years ago.)
IBD: Why the focus on smartphones? Will you possibly launch other ETFs focusing on other innovative tech, such as green or EV vehicles, for example?
Carter: We are not here to build an ETF company. We are investors focused on emerging markets and helping investors gain access to the digitization story that we strongly believe is the best way to invest in emerging markets and which I believe is one of the greatest growth stories of our lifetime.
IBD: What kind of investor buys your funds? What place in a portfolio do the ETFs hold?
Carter: Advisors, institutions and individuals with hopefully a long-term investment horizon that recognize that traditional emerging-markets indexes and ETFs are flawed with their large exposure to state-owned enterprises. The real growth of emerging markets is the entrepreneurial internet companies. I think most investors use it in all or part of their emerging-markets allocation.
IBD: What is your message to investors in the current environment?
Carter: Buy and hold great and growing businesses for the long term.
