The case for Emerging Markets innovation!

As most of you have noticed by now, I am a huge fan of thematic and innovative strategies which try to understand future demands, and hence profit from such evolving trends.

Recently I came across with HANetf, which is Europe’s first independent white label ETF provider.

Although growing, the European ETF market is still considerably small compared to the US. In actual fact, many ETF strategies are only available to US investors and it is only recently that Europe is catching up.

What does HANetf offer?

HANetf is a relatively fresh company but has been created with the main purpose of providing asset managers with a solution to enter the European ETF market, which has previously been dominated by large asset managers and banks. Through its white label ETF platform, the company provides the complete technical, regulatory and distribution infrastructure to successfully launch and manage UCITS ETFs. 

What ETF solutions do they offer?

One ETF which impressed me the most is the Emerging Markets Internet and Ecommerce UCITS ETF (EMQQ) which tracks an index of leading internet and Ecommerce companies in emerging and frontier markets. These companies have to derive more than half of their profits from Ecommerce or internet activities, including search engines, online retailers, social networks, online video, online gaming, e-payment systems and online travel.

What makes this ETF so interesting?

a) Emerging Markets continues to grow

Over 80% of the world’s population lives in emerging and frontier markets - this means more consumption which result in huge profits for entities. Also, a vast majority of future workers and consumers (those under 30), live in emerging and frontier markets. (see below chart for data).

Statistics show that by 2025, annual consumption in emerging markets will reach $30 trillion - the biggest growth opportunity in the history of capitalism.

b) Big shift in consumer patterns

The vast majority of emerging market consumers have never owned a car, never had a shopping mall to drive to and have never owned a computer of any kind, let alone one with an internet connection. But now, broadband internet and smart phones are affordable and available to a fast-growing number of emerging market consumers.

Without a traditional consumption infrastructure in place, Ecommerce companies are enabling the emerging market consumer to leapfrog directly to 21st century patterns of consumption now commonplace across the developed world.

As a simple example, in the developed world consumer patterns in communication shifted slowly from one invention to another (e.g. mail -> telephone line -> mobile phone -> internet). In Emerging Markets, this shift is happening much swifter hence the companies which are developing the latest technologies are set to benefit the most.

c) Lower cost for tech products

Of course with any technology, prices fall drastically once the invention is in the market and this is also such in EM countries. The cost of a smartphone has fallen significantly, with a new handset available for $100-200, making a broadband-enabled computer affordable for huge numbers of increasingly affluent first-time users.

d) Global Exposure

EMQQ delivers access to leading emerging and frontier market internet (see below) and Ecommerce companies which are often excluded from broad emerging market indices that select constituents based on their country of listing. For example, when Alibaba listed on NYSE (19th September, 2014) it was not included in many of the major Emerging Markets ETFs

e) Governance

Unlike some broad emerging market ETFs, EMQQ limits exposure to State Owned Enterprises that are perceived as inefficient, exposed to corruption and with low standards of corporate governance. Additionally, many EMQQ constituents are listed on western stock exchanges (including LSE, Xetra and Borsa Italiana) with high standards of reporting and corporate governance.

f) Efficient

In a single trade, investors gain exposure to a basket of companies that are aligned with the growth of Ecommerce and online business in emerging and frontier markets.

How can I trade this ETF?

This UCITS compliant ETF is available to European Investors on various exchanges:

London Stock Exchange (ISIN: IE00BFYN8Y92, Ticker: EMQP LN, Currency: GBP)
Deutsche Boerse XETRA (ISIN: DE000A2N5XA8, Ticker: EMQQ GY, Currency: EUR)
Borsa Italiana (ISIN: IE00BFYN8Y92, Ticker: EMQQ IM, Currency: EUR)

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Past performance is not a guide to future results. This information is being provided solely for information purposes and should not be deemed or construed as investment advice, advice concerning particular investments, advice concerning investment decisions, tax or legal advice. Similarly, any views or opinions expressed are not intended and should not be construed as investment, tax and/or legal recommendations or advice.  No person should act upon any opinion and/or information in this document without first obtaining professional advice.

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