EMQQ Index Methodology

Overview

EMQQ The Emerging Markets Internet & Ecommerce Index™ (“EMQQ Index” or

“the Index”) measures and monitors the performance of an investable universe

of publicly-traded companies deriving a majority of their assets or revenues

from Internet & Ecommerce in Emerging Markets. The Index was created and is

owned by EMQQ Global LLC. The Index is maintained by Solactive AG (the

“Index Administrator”).

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The EMQQ The Emerging Markets Internet & Ecommerce Index™ is comprised of the public securities of issuers that meet the specific and objective criteria listed below.

 

EMQQ Eligibility Criteria

 

To be considered for inclusion in the Index, the following criteria must be met:

 

  1. Emerging Markets Internet Exposure  The primary criteria for selecting a company for inclusion in the Index is that the company derives a majority of its assets or revenue from Internet & Ecommerce activities in Emerging Markets countries as defined in Exhibit A of this methodology.
  2. Equity Securities. Only publicly issued common equity securities are eligible inclusion in the Index. Debt or quasi-debt securities, such as convertible securities, are not eligible for inclusion.
  3. ADRs. Exchange-traded American Depository Receipts (ADR’s), American Depository Shares (ADSs), Global Depository Receipts (GDR’s), and International Depository Receipts (IDR’s) are eligible for inclusion in the Index.
  4. Market Capitalization. The Index will include equity securities of companies of all capitalizations. Constituents must have a free-float adjusted market capitalization of USD $300 Million or greater for initial inclusion in the Index. A free-float adjusted USD $200 Million minimum is required for ongoing Index inclusion.
  5. Liquidity. To ensure adequate liquidity, constituents must have three (3) month average daily turnover of at least USD $1 million USD.
  6. Foreign Ownership Restrictions. Companies traded in markets with restrictions on foreign ownership may be excluded from the Index.

The Index uses a modified float-adjusted market capitalization weighting methodology to weight individual positions.

 

Security Weight – Maximum. The target weight of any one position is limited to 8.0% of the Index. Semi-annually, all individual securities with an Index weighting greater than 8.0% will be rebalanced back to 8.0%. Excess exceeding 8.0% will be applied proportionally to all remaining Index constituents. Then, all positions whose float adjusted market capitalization weights are over 5% are added together. If the total is less than 50%, no further modifications are made. If the total is equal to or greater than 50% then the highest weighted position is capped at 8%. The excess weight is then applied on a pro-rata basis to all the remaining Index constituents and the process is then repeated, if necessary, with the next largest stock being capped at a weight 0.5% less than the previous constituent (examples: 7.5%, 7.0%, 6.5%, 6.0%, 5.5%, 5.0%, 4.5%) until 50% is reached. The 4.5% maximum target weight is then applied to all the remaining stocks.

 

Once set, either initially or at a semi-annual rebalance, target weights are free to float due to market actions. Weights are reviewed and the Index rebalanced according to the rules under Index Maintenance below.

Additions

Additions to the Index will be made at a semi-annual rebalance on the third Friday of June or December. Any addition will be funded on a pro-rata basis from the remainder of the Index, net of any deletions.

Deletions

A constituent will be deleted from the Index immediately due to bankruptcy, acquisition, delisting or merger of the company by or into another company, spin-offs, tender offers or other similar corporate actions. At each quarter end, any security which has been continuously suspended or halted since the prior quarter will be deleted from the Index at zero value. In the case of such deletions, including any relisting of suspended constituents, no replacements will be made until the annual rebalance. Any proceeds resulting from the deletions will be applied on a pro-rata basis over the remainder of the Index, net of any additions.

Index Reconstitution and Semi-Annual Rebalance

Index Reconstitution is the responsibility of the Index Administrator and is performed semi-annually in June and December based on data as of the last business day in May and November respectively. Index Reconstitution includes:

  1. Additions to the Index. New constituents will be added to the Index if they meet the eligibility requirements as defined above under Eligibility Criteria. Any additions will be funded on a pro-rata basis from the remainder of the Index, net of deletions.
  2. Deletions from the Index. Constituents will be deleted from the Index if they no longer meet the eligibility requirements as defined above under Eligibility Criteria with one exception. Constituents that fall below the initial capitalization minimum of USD $300 Million will be retained unless their capitalization falls below the minimum of USD $200 Million. Constituents falling below the minimum of USD $200 Million will be deleted. Any proceeds resulting from the deletions will be applied on a pro-rata basis over the remainder of the Index, net of additions.
  3. Rebalancing. The Index will be rebalanced to accommodate any additions or deletions to the Index as described above and to enforce the target weights as described above under Index Construction.

Solactive AG serves as the Index Administrator. These responsibilities include monitoring and implementing adjustments, additions and deletions to the indices due to eligibility rules described above and corporate actions.

Index Calculation

Solactive AG serves as the Calculation Agent for the indices. The Calculation Agent is responsible for compiling, calculating, maintaining, and disseminating the value of the indices.

Index Reconstitution

Solactive AG will review and adjust the Index on a semi-annual basis (“Index Reconstitution”) on the third Friday of June and December. Changes to an Index resulting from the Index Reconstitution are implemented before the market open on the first trading day following the reconstitution.

EMQQ Index Committee

The EMQQ Index Committee solely maintains EMQQ The Emerging Markets Internet & Ecommerce Index Methodology and is not involved in any way in the day to day maintenance or administration of the Index.

The Index Committee will meet semi-annually to review the methodology. The Index Committee, at its sole discretion, may choose to add or delete index constituents when it believes such actions are in the best interest of shareholders of products that track the Index. Any changes to the methodology will be publicly disclosed at https://emqqetf.wpengine.com/index/ prior to implementation. At minimum ten (10) days prior notice will be given prior to the implementation of any such change by the Index Administrator.

EMQQ Index FAQ

What companies are included in EMQQ Index?

Any publicly traded company deriving more than 50% of revenue from internet or ecommerce in emerging or frontier markets is eligible to be included in the EMQQ index so long as it meets size and liquidity minimums.

What is the minimum size?

Eligible companies must have a minimum market capitalization of $300,000,000 USD to be included in the EMQQ Index. Additionally, the shares of any eligible company must have at least $1.0 million in average daily volume to insure liquidity.

How are the stocks in EMQQ selected and weighted?

The EMQQ index is a rules based index which means that all eligible companies that meet the size and liquidity minimums are included. The index uses a modified market capitalization weighting system. The largest position is capped at an 8% maximum weight to ensure diversification.

When is EMQQ rebalanced?

The index is rebalanced semi-annually on the third Friday in June and December.

When are new companies added to EMQQ?

New companies that meet the eligibility requirements will be added to the index at the time of the semi-annual rebalancing.

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Disclosures
Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained by visiting www.emqqetf.com. Read the prospectus carefully before investing.
Beginning December 3, 2020, market price returns are based on the official closing price of an ETF share or, if the official closing price isn’t available, the midpoint between the national best bid and national best offer (“NBBO”) as of the time the ETF calculates current NAV per share. Prior to December 3, 2020, market price returns were based on the midpoint between the Bid and Ask price. NAVs are calculated using prices as of 4:00 PM Eastern Time. The returns shown do not represent the returns you would receive if you traded shares at other times.

Risk Information

Investing involves risk, including the possible loss of principal. Investments in smaller and mid-sized companies typically exhibit higher volatility. The fund is non-diversified. International investing may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Frontier markets generally have less developed capital markets than traditional emerging market countries, and, consequently, the risks of investing in foreign securities are magnified in such countries. These countries are subject to potentially significant political, social and economic instability, which could materially and adversely affect the companies in which the Fund may invest. The Fund invests in the securities of Internet Companies, including internet services companies and internet retailers, and is subject to risk that market or economic factors impacting technology companies and companies that rely heavily on technology advances could have a major effect on the value of the Fund’s investments.
There is no guarantee that the Fund or the index will achieve its investment objective.
Exchange Traded Concepts, LLC serves as the investment advisor, and Penserra Capital Management LLC serves as a sub advisor to the fund. The Funds are distributed by SEI Investments Distribution Co. (1 Freedom Valley Drive, Oaks, PA, 19456), which is not affiliated with Exchange Traded Concepts, LLC or Penserra Capital Management LLC.
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