Amplify emerging markets fintech
Independent ETF provider Amplify is launching an emerging markets fintech ETF. The fund has been created by repurposing its international online shopping ETF (XBUY)
The Amplify Emerging Markets FinTech ETF (EMFQ US) tracks the EQM Emerging Markets FinTech Index.
To get in the index, companies must make 50% or more of their revenue from technology that is disrupting traditional finance. While all emerging markets headquarter companies are eligible, Chinese companies can only make the cut if they have international listings. As might be expected, payment and banking app providers dominate the fund.
Companies included are equally weighted. Countries are capped at 25%, however Hong Kong and Taiwan are classed as separate countries to China and not included in the China 25% cap.
Alibaba, Tencent, JD.com, Lufax, Fanhua, are among the more famous names in the index.
The fund charges 0.69%.
Bernie’s commentary – seeing outflows
The trailblazer for emerging markets tech was the EMQQ ETF, which was launched independently by Kevin Carter in 2014. The fund correctly picked the growth of tech giants and online shopping in China. With its big bets on Alibaba and Tencent, EMQQ went on to strongly outperform the MSCI Emerging Markets Index and gathered billions in assets.
But after China began its big tech crackdown last year, EMQQ began to suffer. It fell more than 50% as Alibaba and Tencent tanked. It has seen $240 million in outflows the past 12 months.
These outflows matter because today’s launch intends to compete with EMQQ. While EMFQ and EMQQ have slightly different investment strategies, they still hold similar stocks and have similar tickers. What’s more, a big part of the success of internet companies in China owes to their fintech disruption (Alipay, the Alibaba payments subsidiary, had 50% gross margins before Xi Jinping gave Jack Ma the spank, this is apparently a legal definition). Meaning that a bet on EMQQ has always also been a bet on emerging markets fintech.
While EMQQ may seem like a soft target for competition ($1 billion AUM on a 0.86% fee from a small ETF provider) you still have to question the timing. Investors are rotating out of growth stocks like fintech, distancing themselves from China, and growing impatient with emerging markets underperformance. So while competition may be due, is now really the time? I guess we’ll find out.