Internet and technology investors are always looking for the next unicorns; those disruptive and transformative companies with the potential to deliver epic share price appreciation. Getting in on unicorns’ ground floors can be difficult for many investors, but the Emerging Markets Internet & Ecommerce ETF (EMQQ ) offers a compelling route to some international unicorns.
EMQQ, which is up 27.11% this year, provides exposure to the growing emerging market consumer sector, notably those related to online retailers or the quickly expanding e-commerce industry. Chinese Internet giant Tencent Holdings Ltd. (TCEHY), EMQQ’s largest holding, is a unicorn breeding ground.
At a recent conference, Tencent President Martin Lau noted that over the past decade, the company invested in more than 700 companies.
“Among the 700 companies, 63 are now listed, and 122 are unicorns with market capitalization or value of more than $1 billion,” according to EMQQ. “During 2018, 16 of the invested companies went public, including the much-publicized Tencent Music Entertainment Group (TME). The combined total market capitalization of companies in which Tencent holds more than 5% now exceeds $500 billion.”
What’s Next for EMQQ?
EMQQ primarily focuses on the internet and e-commerce sectors of the developing world, helping investors capitalize on the growth of consumption in emerging markets, which represents a significant growth opportunity as more than a billion people are expected to enter the consumer class in the coming decades. Tencent currently represents almost 8.30% of EMQQ’s roster.
In addition to investments in Chinese and U.S. companies, Tencent has taken stakes in companies based in other countries.
“It has invested heavily in India through an investment in a music service called Gaana, along with an investment in food delivery app Swiggy,” according to EMQQ.
India is Asia’s third-largest economy behind China and Japan. For its part, the EMQQ ETF has one of the largest weights to Tencent among any US-listed ETF. That exposure could serve investors well going forward.
“Tencent has a history of investing in companies with either complementary technologies and services as well as emerging products and technologies,” according to EMQQ. “These have been used to either strengthen the company’s existing platforms or to expand into new areas. Many of these investments have become successful and spun out of Tencent.”
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