GuruFocus had the pleasure of hosting a presentation with Kevin T. Carter, the founder and chief investment officer of EMQQ.
While he considers himself an active "value" investor first and foremost, he has collaborated with Princeton economist and indexing legend, Dr. Burton Malkiel, for more than 20 years. Their work together began in 1999 with the development of eInvesting, a pioneer firm in fractional share brokerage that was acquired by E-Trade in 2000. In 2002, they founded Active Index Advisors, a pioneer in so-called "direct indexing" that was acquired by Natixis Asset Management in 2005.
In 2006, their efforts turned to China and emerging markets with Malkiel's publishing of "Investment Strategies to Exploit Economic Growth in China" and the subsequent book, “From Wall Street to the Great Wall.” Working with Guggenheim Partners, they launched several China-focused exchange-traded funds on the New York Stock Exchange.
Carter launched EMQQ in 2014 after noticing how the smartphone was changing his personal consumption habits. He now lives in Lafayette, California with his wife and three children.
Watch the full stream here:
Key takeaways
Carter kicked off his presentation with some background on himself and how he became involved in the world of investing. He began his career after one interview with a leading technology-focused investment bank in San Francisco.
He described his 22 years of experience with one foot in the active investing world and one foot in the index investing world. Through several different companies, he established himself as a frontrunner for index fund investing and eventually found himself in talks with Google (GOOG, Financial) employees who were interested in investing. Carter soon found himself acting as an investment advisor before shifting his focus to emerging markets and China.
Carter then transitioned his presentation to emerging markets. After an explanation of the growth in population and adoption of technology in emerging markets, he came to the conclusion that there is a unique opportunity to be found by investing in these places. Overall, he believes the consumers in emerging markets will drive massive growth in stocks coming from these regions.
He continued to explain what he calls the great confluence. With consumers as a focus, Carter realized that emerging markets have seen a drastic increase in common wealth among their populations. This allows them to increase spending and be able to buy products or spend money on vacations.
His second megatrend took a look at the adoption of smartphones around the world. He explained that millions of new consumers are now able to purchase smartphones and, therefore, are gaining access to the internet for the first time in their lives. These new connections are allowing consumption infrastructure, the ability for these people to purchase products they had not previously had access to, to develop in emerging markets.
Overall, Carter argued that emerging markets will continue to see a massive increase in consumer spending, supporting the e-commerce companies that operate in them. This in turn should drive revenue growth and offer the potential for great performance of these stocks over the next five to seven years.
Stocks
Carter hit on many different companies throughout his presentation that the audience could look to as examples of companies that are making big gains in emerging markets. He explained that Alibaba Group Holding Ltd. (BABA, Financial) and Tencent Holdings Ltd. (TCEHY, Financial) should be thought of more as consumer companies rather than internet companies. He believes these two companies should perform well thanks to their widespread penetration in multiple sectors.
Questions
Carter took the time to answer many great questions that came in from the audience. One question asked about different Chinese indexes and whether he thinks widespread news coverage has been a headwind on companies within them.
He explained that he believes the fear of investing in China has been overblown by U.S. media and that many of these companies are likely going to be around for a long time. Companies that have gotten in trouble, here he used Didi Global Inc. (DIDI, Financial) as an example, were actually violating cybersecurity laws in China. He thinks that China will continue to let these companies flourish and that investors should not be scared away by Chinese accounting.
The final question Carter answered asked him how he goes about doing due diligence when it comes to the management of companies in emerging markets. He explained the index operates on a simple rules-based strategy that owns every publicly traded company that meets their requirements. This does not require the type of research that an active investor might put into these companies.
However, he continued to explain that many of the companies in these emerging markets are getting funding from what he considers to be the top investment firms and managers in the world. Seeing the due diligence being done on companies by the world’s best investors before he thinks about adding a company to the ETFs gives Carter a great deal of comfort.
