This Is How To Create The Top Emerging-Markets ETF

CHINESE CONSUMERS are optimistic this year.

- Jon Asmundsson

In fact, consumer confidence in China reached its highest level in more than 20 years in July. That’s good news for plenty of people.

One of them is Kevin Carter, the founder of 2017’s best performing emerging-markets exchange-traded fund. What’s his take on the rise of the consumer in developing markets such as China? “I believe with strong conviction that it’s the greatest growth story of our lifetimes,” says Carter, 47.

“The consumer story is the whole story,” he says. Start with the observation that 80 percent of the world’s people are in emerging markets, then add that 90 percent of the planet’s young people— age 30 and under—are in those countries. “Smartphones are getting cheaper, and more people are getting the internet,” Carter says. So, of course, those consumers are increasingly shopping online.

The $305 million Emerging Markets Internet & Ecommerce ETF, whose ticker is EMQQ, gained 65 percent this year through Sept. 19, making it the No. 1 emerging-markets ETF, excluding leveraged funds, according to data compiled by Bloomberg.

HOW DID EMQQ rack up those returns? In a nutshell, the ETF invests in every publicly traded company in the world whose main business is internet- or e-commerce-related in emerging markets, Carter says. A couple of other constraints: Market cap must be more than $300 million, and stocks need to trade more than $1 million of volume a day. “That’s how the companies are selected. There’s no judgment—no ‘We like this one, we don’t like that one,’ ” he says. “It’s a rules-based index, and every company that fits the criteria should get included.” As of September the index comprised 43 companies.