EMQQ The Emerging Markets Internet ETF (EMQQ)

The Emerging Markets Internet ETF (EMQQ) is a fund that invests in technology and internet companies based in emerging markets — countries whose economies are growing rapidly but lack the market maturity of the US, Europe, or Japan. Rather than tracking a passive index, the fund’s managers actively select companies they believe will benefit from rising internet adoption, e-commerce growth, and the digital transformation of consumer markets in Asia, Latin America, and the Middle East.

The case for emerging-market internet

EMQQ launched in 2013, a time when the internet was still establishing itself in many emerging economies but technology adoption was accelerating rapidly. The fund’s thesis was straightforward: companies like Alibaba, Tencent, and smaller regional players were building business models — e-commerce, mobile payments, social messaging, and cloud services — that would grow for decades as emerging-market consumers came online. These companies were not traded in US markets, and even when available in the form of American Depositary Receipts, they were scattered and unfamiliar to most US investors.

The fund offered a vehicle for US investors to gain concentrated exposure to this trend without picking individual stocks or trading on foreign exchanges. Emerging Global Advisors positioned EMQQ as an active fund, meaning its managers would research and select specific companies they believed would outperform, rather than simply holding every internet company in a market-cap-weighted index.

The internet boom in emerging markets

Over the decade following the fund’s launch, the investment thesis played out as expected in many respects. Internet penetration in Asia, Latin America, and the Middle East surged. Alibaba grew into the world’s second-largest e-commerce platform by transaction volume. Tencent expanded from a messaging app into a diversified tech conglomerate spanning social media, gaming, cloud services, and payments. Smaller companies in India, Southeast Asia, and Latin America scaled rapidly as smartphone adoption spread and payment infrastructure matured.

EMQQ benefited from this tailwind, capturing exposure to both the mega-cap winners and smaller regional players that investors outside those markets might otherwise miss. The fund’s active management allowed the managers to increase and decrease weightings based on their views of individual companies and the changing competitive landscape.

The active-management structure and current holdings

Today, EMQQ’s portfolio typically includes between 60 and 90 companies, concentrated in a few core holdings but with meaningful exposure to smaller emerging-market tech players. Chinese companies (Alibaba, Tencent, Baidu, Pinduoduo, NetEase, and others) have historically represented a large share of the fund because China has the deepest pool of large, publicly traded internet companies. Indian tech companies (Infosys, HCL Technologies, and mobile-first startups) and Latin American platforms represent secondary allocations.

The fund holds companies across multiple internet-adjacent sectors: e-commerce and consumer marketplaces, fintech and payments, cloud computing, digital advertising, gaming, and social media. The managers actively adjust weightings as their conviction in individual companies changes or as competitive dynamics shift.

The risk of concentration and China exposure

The fund’s concentration in Chinese internet companies is both a strength and a vulnerability. China’s tech ecosystem is the largest and most advanced in the emerging markets, but it is also subject to regulatory shifts, geopolitical tensions, and government intervention. In 2020–2021, China’s government implemented sweeping regulations on technology companies — limiting data practices, requiring algorithms to be approved, restructuring education and gaming, and imposing antitrust penalties. These moves significantly impaired the valuations and growth prospects of the fund’s largest holdings.

The fund is also exposed to currency risk. As the US dollar strengthens against the Chinese yuan, Indian rupee, and other emerging-market currencies, the dollar value of the fund’s international holdings declines even if the underlying companies perform well. The fund does not hedge these currency exposures, leaving shareholders to bear them.

Additionally, emerging-market regulatory environments remain less transparent and more volatile than in developed markets. A government can change tax treatment, restrict foreign investment, censor or shut down digital services, or impose capital controls with limited notice. These risks are lower in countries like India and Brazil than in China, but they exist across the portfolio.

How the fund trades and performs

EMQQ trades on the NASDAQ like any stock. Its net asset value is calculated daily based on the closing prices of its holdings in their home markets, and shares trade around that value during US market hours. The fund’s expense ratio is higher than a passive emerging-markets index fund, reflecting the cost of active management and research.

The fund’s performance has been volatile. In periods when emerging-market internet companies are in favour (typically when US growth slows and investors seek higher growth elsewhere), EMQQ outperforms. In periods when US technology stocks dominate or when regulatory headwinds hit emerging-market tech (as in 2021–2023), the fund underperforms. Over longer periods, the key question is whether the fund’s active managers can select stocks that outperform a simple emerging-markets index after fees — a test that most active funds fail over time.

Structural advantages and disadvantages of the ETF wrapper

EMQQ uses the ETF wrapper, which offers liquidity advantages over a closed-end fund. Shares can be created and redeemed by authorised participants, keeping the trading price aligned with the net asset value and allowing shareholders to exit positions during normal market hours. This structure is cheaper and more flexible than older closed-end emerging-market funds, though the fund still charges a meaningful expense ratio for active management.

The ETF structure also provides tax efficiency compared to traditional open-end mutual funds, as the creation-and-redemption mechanism allows the fund to avoid triggering capital gains distributions from buying and selling shares to meet redemptions.

The case for and against EMQQ

The bull case is that emerging-market internet adoption remains in its early innings, that managers with deep knowledge of these markets can identify winners before they become widely known, and that the fund offers access to companies whose growth profiles exceed those of developed-market peers. The bear case is that most active managers fail to beat indices over time, that emerging-market regulatory risk has increased since 2013, that concentration in Chinese tech leaves the fund vulnerable to policy shifts, and that currency headwinds can erode returns for US-based investors.

How to research the fund

Start with the fund’s prospectus and fact sheet, which detail current holdings, sector weightings, and the management team’s approach. Review the fund’s performance against relevant benchmarks — a broad emerging-markets equity index and other emerging-market-focused technology or growth funds — over periods of one, three, five, and ten years to assess whether the active management has added value after fees.

Monitor the fund’s largest holdings and their performance. Watch for regulatory announcements in key markets, particularly China, that could affect the companies the fund owns. Track the fund’s trading volume and bid-ask spread for liquidity. Finally, compare EMQQ’s expense ratio to other actively managed emerging-market funds to assess whether the fees are justified by the expected outperformance.