Han Solo – is back

Speedread

  • HANetf brings the $380m EMQQ fund over to London
  • First Trust lists European IPO ETF

London and Germany

HANetf brings EMQQ over to London

HANetf, Europe’s only ETF white labeler, is bringing EMQQ, the $370 million emerging markets internet ETF listed in New York, over to Europe. The EMQQ Emerging Markets and Ecommerce UCITS ETF (EMQQ) tracks an index provided by Big Tree Capital and calculated by Solactive. It picks EM companies that make most of their money from internet-related services. To be included, companies must derive more than half their profits from internet activities, like search engines, online retailers, social networks and online gaming.

Stocks are then selected and weighted by market cap, with the biggest companies’ weights capped at 8%. The index is rebalanced every six months with any companies taking more than 8% of the index sold down. Going through the index, the fund looks like a China tech tracker, with South Africa’s Naspers and Argentina’s Mercado Libre adding some colour.

Analysis – European risk-taking

As a general rule, Europe’s ETF market is a lot less interesting than the North American, Korean and Australian ETF market. This is so for two reasons. First, Europe’s ETF market is overwhelmingly institutional. European ETF providers are making products for other asset managers who cannot deviate from their benchmarks. Globally, most demand for colourful and interesting ETFs comes from retail investors and their advisors, which there are less of in Europe. By way of contrast, Australia has the reputation for being a financial services backwater. Yet its ETF market is far more interesting than London’s thanks to the large rump of retail investors and their superannuation funds.

Second, internal politics dominates European product innovation. As everyone knows, the hardest thing about getting a new ETF to market when you’re working for a big institution is getting the idea past your boss. Europe’s product engineers know that any attempt to try a new idea will require sitting through endless meetings and choking on bureaucracy. They know that if the product they took the internal risk on succeeds, their boss will claim credit for it. While if it fails, their boss will blame them. The net result is blunted innovation incentives.

With this in view, it’s good to see the folks at HANetf take the risk on an unconventional product like this. I’m skeptical as to how much assets EMQQ will gather. (I don’t see English retail investors taking it up). Still, I respect Hector and Nik for having the courage to try.

USA

First Trust lists European IPO ETF

First Trust is rolling out an unconventional Europe tracker that invests in IPOs, spin-offs and equity carve-outs. The First Trust IPOX Europe Equity Opportunities ETF (FPXE) will track a proprietary index developed by Josef Schuster, a self-professed IPO guru. FXPE will invest in the 100 largest and most liquid IPOs, spin-offs and equity carve-outs of European companies.

The index methodology is not completely clear. The prospectus says that stocks are selected from a “base index” that looks at companies for four years after being IPO-ed or spun off. Companies in this base index are market cap weighted and appear to be selected for the fund based on liquidity.

The Index is reconstituted and rebalanced quarterly, with the biggest companies’ weights capped at 10%.