Emerging Markets: Brendan Ahern on Internet Growth and Single Stock ETFs

Emerging markets are changing fast. Old economy sectors like banks and energy no longer define the space. Instead, growth is being driven by internet platforms, tech enabled consumer companies, and new economy business models reshaping how investors approach EM exposure. 

In this Lead-Lag Deep Dive, Melanie Schaffer sits down with Brendan Ahern, Chief Investment Officer at KraneShares, to break down how this transformation is unfolding and what investors need to understand about both broad EM strategies and single stock levered ETFs.

Ahern explains the mechanics of daily leveraged ETFs, why fundamentals for companies like Alibaba, Mercado Libre, Pinduoduo, JD and others may be misunderstood, and how concentrated growth exposure differs from traditional EM allocations. He also discusses how investors should think about volatility, sizing, and the macro factors that create both opportunity and risk across emerging markets.

In this episode:

- How single stock levered ETFs actually work and why daily resets matter
- Why EM fundamentals are shifting toward internet platforms and tech enabled services
- The temptation and the risk in overweighting individual EM growth names
- How KWEB and KEMQ isolate growth that broad EM indices miss
- How to size and risk adjust aggressive EM exposures inside a diversified portfolio

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Episode Transcript

SPEAKER_00 (01:12):
So you have to think about your own risk reward
preferences, and there'sdefinitely risks involved that
go beyond a developed marketlike the U.S.
when you're thinking aboutnon-U.S.
markets in general, butparticularly emerging markets.
And even the same, I think, isthe case with individual names
where you have single stockrisks.

(01:32):
So yeah, this is definitelythese are uh these single stock
Leverty TFs are definitely forthe more aggressive investors.

SPEAKER_01 (01:51):
I'm your host, Melanie Schaefer.
Welcome to Lead Lag Live.
Emerging markets have long beendominated by old economy sectors
like banks, materials, andindustry, but a silent shift is
underway with cloud computing,AI adoption, and e-commerce
accelerating.
And some EM companies arechanging the game.
Now, growth is being driven byinternet platforms, tech-enabled

(02:14):
consumer services, and neweconomy business models.
That's why today's conversationmatters.
My guest is Brendan Ahern, ChiefInvestment Officer at Crane
Shares, and we're going to diginto how Crane Shares is giving
investors targeted access tothis shift, both the broad
emerging markets level and downto single stock levered

(02:35):
exposure.
Brendan, welcome.

SPEAKER_00 (02:37):
Hey, great to see you, Melanie.

SPEAKER_01 (02:40):
So first let's start simple.
Can you explain how single stocklevered ETFs like uh K B A B,
KPDD, et cetera, uh work andwhat kind of exposure or risk
are they offering relative to astandard EM or index funds?

SPEAKER_00 (02:55):
Yeah, single stock levered ETFs like KBAB, which uh
basically takes Alibaba's ADRand gives you twice the
performance on a daily basis.
And I think that's really thethe key uh point for investors
to understand is it's it'sgiving you a daily exposure.

(03:15):
So if if Alibaba's up 1% or down1%, KBAB would be up 2% or down
2%.
Uh, but that resets on a dailybasis.
So so I think some of the someof the issues investors run into
with levered ETFs is they're notthinking about that.
I'm not getting twice theperformance over a month.

(03:39):
It's twice the performance on adaily basis.
So so there's a path dependency.
It's it's really the order ofreturns kind of determines the
outcome versus thinking about,okay, I'm gonna own this for
three months and I'm gonna havetwice the performance.
That's not that's not the case.
It's it's the performance on adaily basis, on a levered basis.

(04:02):
So it's a it's it's a reallyimportant aspect about levered
ETFs to understand is this dailycompounding effect.
Um, and so that order of returnsis very critical to understand.

SPEAKER_01 (04:16):
So, Brendan, when you when you look at the
fundamentals for the companiesbehind those ETFs, some of them
you mentioned, such as Alibaba,what do you see that the market
might not yet be pricing in?
And what's the bull case?
Where might there bemisunderstood potential?

SPEAKER_00 (04:31):
Well, I think I think it it goes back to one of
one of the original points youmade, Melanie, which is a lot of
what's embedded in emergingmarkets is slow no growth
sectors.
You know, financials and energyhave historically been really,
really big parts of the emergingmarket indices.

(04:51):
And that explains some of thesignificant underperformance of
emerging markets versus say USequities, where indices like the
S P 500 are really dominated bynot just say technology, but
growth stocks.
And they were kind of reallywell known for K Web, uh, which

(05:15):
kind of takes takes the growthstocks, this kind of growth
factor from broader China, whichis broad China's not performed
well.
And K Web gives you this puregrowth exposure.
We did the same with KEMQ, whichagain really is focused on the
growth stocks within broademerging markets.

(05:37):
And lo and behold, you have avery different outcome.
And then we've thought aboutwell, there's actually
individual companies that wethink investors might want to
overweight within theirportfolios, companies like Pindu
Oduo, Alibaba, Mercado Libre,JD.com, and Badu.
And so again, these are namesthat we think are arguably

(06:01):
underrepresented withininvestors' exposures.
And for those that are lookingto uh have a little bit more of
an aggressive strategy, we offerthese uh uh single stock leverty
T-offs over those individualnames.

SPEAKER_01 (06:16):
Yeah, Brendan, with that being said, though,
emerging markets are are theyremaining vulnerable to macro
factors such as trade tensions,regulatory risk, uh geopolitical
ahead wins as well.
How do you trade, how do tradetensions or regulatory
uncertainty impact theseinternet heavy, especially EM
names?
And how should investors thinkabout that risk?

SPEAKER_00 (06:33):
Yeah, I mean, certainly we recommend investors
have to uh volatility adjusttheir portfolios when utilizing
these vehicles because emergingmarkets, just broadly speaking,
just like individual stocks, isgoing to be more volatile than,
say, developed market indiceslike the S P 500, US equities.
So you have to think about yourown risk reward preferences.

(06:57):
And there's definitely risksinvolved that go beyond um you
know a developed market like theUS, uh, when you're thinking
about non-US markets in general,but particularly emerging
markets, and and even the same,I think, is the case with
individual names where you havesingle stock risks.
So yeah, this is definitelythese are uh these single stock

(07:18):
levered ETFs are definitely forthe more aggressive investors.

SPEAKER_01 (07:23):
Yeah.
So if we sort of switch uh nowand talk about the broader
basket uh perspective funds suchas KWeb, as you mentioned
before, and uh KEMQ, how do youview the opportunity there in
emerging markets now, given thatmany traditional EM allocations
have legged uh tech and internetgrowth?

SPEAKER_00 (07:42):
Yeah, I think uh, you know, you know, we've had
this incredible bull market inUS equities.
Uh really over six the last 16years, US stocks have
outperformed non-US stocks by avery, very wide margin, about uh
probably 800 percentage points.
And so, you know, if you thinkabout six, you know, yeah,

(08:06):
that's 16 years is 64 quartersof owning these non-US equities.
And I think for for manyinvestors, they're very, very
overweight US stocks.
Uh, they've they've reducedtheir non-US uh equity
positions.
In many cases, it's probablyzero.

(08:26):
So, so you know, one, we thinkpart of that is due to this
index sector dysfunction wherefinancials and energy was such a
disproportionate percentage ofemerging markets as well as
China, which is why we created KWeb and KEMQ to give you these
this growth.
But but you know, the otherfactor at play has obviously

(08:48):
been a very strong US dollar,and that's diminishing, that the
dollar's been weakening over thelast two, three years.
So that tailwind is becoming alittle bit of a headwind.
So we think there's a number of,besides the valuations of very
high level in US equities, wereally do believe that there's

(09:08):
an opportunity outside of theUS.
We just want to give investorsthat growth exposure, that kind
of tip of the spear, and likewe've done with China, with K
Web, with emerging markets,KEMQ, and now on some individual
stocks.

SPEAKER_01 (09:24):
And Brendan, you mentioned uh that the single
stocks may be better for moreaggressive traders a few minutes
ago, but uh given the volatilitythat's inherent in emerging
markets, and especially in theseleveraged or high growth games,
what kind of investors do youthink these single stock or EM
tech ETFs are most appropriatefor?
And what's a sensible way forsomeone to size in or manage

(09:46):
exposure here?

SPEAKER_00 (09:47):
Yeah, I mean, certainly these funds are going
to be have an extra layer ofvolatility.
And that volatility can work inyour favor, but but I think you
have to go into this eyes wideopen, which is recognizing that
there could be downsidevolatility.
And and so I think you you, A,you gotta you gotta think about
your own risk rewardpreferences, working with your

(10:08):
financial advisor, uh, reallythinking about, you know, you
know, you know, am I gonna, youknow, do I, do I have that risk
tolerance?
You know, what's my drawdown?
You know, what am I thinkingabout?
So I think all of these arefactors and really, you know,
ultimately risk and volatilityadjusting this position.
This is a small part.

(10:28):
These single stock leveragefunds are a small part of a
well-diversified portfolio.

unknown (10:33):
Right.

SPEAKER_01 (10:34):
And then finally, for investors watching who want
to learn more about CraneShare'ssingle stock suite or uh
emerging market tech exposure,where should they go?
And what resources or tools doesCraneShare provide to help
evaluate these opportunities?

SPEAKER_00 (10:46):
It certainly we provide a wealth of information
on Craneshares.com, and you canalways do Craneshares.com
backslash the ETF ticker, so uhcraneshares.com backslash, say K
E M Q.
Um, and we give you all theholdings, we'll give you our
fact sheet, our ourpresentation, our investment

(11:06):
thesis, as well as uh, yeah,we're really in the business of
providing investors all thedata, all the resources in order
to make an investment decision.

SPEAKER_01 (11:16):
Renna, thank you so much for joining me and helping
me unpack this opportunity.
And thanks to everyone forwatching.
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