Lead-Lag Live

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

• Michael A. Gayed, CFA

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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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SPEAKER_00:

So you have to think about your own risk reward preferences, and there's definitely risks involved that go beyond a developed market like the U.S. when you're thinking about non-U.S. markets in general, but particularly emerging markets. And even the same, I think, is the case with individual names where you have single stock risks. So yeah, this is definitely these are uh these single stock Leverty TFs are definitely for the more aggressive investors.

SPEAKER_01:

I'm your host, Melanie Schaefer. Welcome to Lead Lag Live. Emerging markets have long been dominated by old economy sectors like banks, materials, and industry, but a silent shift is underway with cloud computing, AI adoption, and e-commerce accelerating. And some EM companies are changing the game. Now, growth is being driven by internet platforms, tech-enabled consumer services, and new economy business models. That's why today's conversation matters. My guest is Brendan Ahern, Chief Investment Officer at Crane Shares, and we're going to dig into how Crane Shares is giving investors targeted access to this shift, both the broad emerging markets level and down to single stock levered exposure. Brendan, welcome.

SPEAKER_00:

Hey, great to see you, Melanie.

SPEAKER_01:

So first let's start simple. Can you explain how single stock levered ETFs like uh K B A B, KPDD, et cetera, uh work and what kind of exposure or risk are they offering relative to a standard EM or index funds?

SPEAKER_00:

Yeah, single stock levered ETFs like KBAB, which uh basically takes Alibaba's ADR and gives you twice the performance on a daily basis. And I think that's really the the key uh point for investors to understand is it's it's giving you a daily exposure. So if if Alibaba's up 1% or down 1%, KBAB would be up 2% or down 2%. Uh, but that resets on a daily basis. So so I think some of the some of the issues investors run into with levered ETFs is they're not thinking about that. I'm not getting twice the performance over a month. It's twice the performance on a daily basis. So so there's a path dependency. It's it's really the order of returns kind of determines the outcome versus thinking about, okay, I'm gonna own this for three months and I'm gonna have twice the performance. That's not that's not the case. It's it's the performance on a daily basis, on a levered basis. So it's a it's it's a really important aspect about levered ETFs to understand is this daily compounding effect. Um, and so that order of returns is very critical to understand.

SPEAKER_01:

So, Brendan, when you when you look at the fundamentals for the companies behind 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 be misunderstood potential?

SPEAKER_00:

Well, I think I think it it goes back to one of one of the original points you made, Melanie, which is a lot of what's embedded in emerging markets is slow no growth sectors. You know, financials and energy have historically been really, really big parts of the emerging market indices. And that explains some of the significant underperformance of emerging markets versus say US equities, where indices like the S P 500 are really dominated by not just say technology, but growth stocks. And they were kind of really well known for K Web, uh, which kind of takes takes the growth stocks, this kind of growth factor from broader China, which is broad China's not performed well. And K Web gives you this pure growth exposure. We did the same with KEMQ, which again really is focused on the growth stocks within broad emerging markets. And lo and behold, you have a very different outcome. And then we've thought about well, there's actually individual companies that we think investors might want to overweight within their portfolios, companies like Pindu Oduo, Alibaba, Mercado Libre, JD.com, and Badu. And so again, these are names that we think are arguably underrepresented within investors' exposures. And for those that are looking to uh have a little bit more of an aggressive strategy, we offer these uh uh single stock leverty T-offs over those individual names.

SPEAKER_01:

Yeah, Brendan, with that being said, though, emerging markets are are they remaining vulnerable to macro factors such as trade tensions, regulatory risk, uh geopolitical ahead wins as well. How do you trade, how do trade tensions or regulatory uncertainty impact these internet heavy, especially EM names? And how should investors think about that risk?

SPEAKER_00:

Yeah, I mean, certainly we recommend investors have to uh volatility adjust their portfolios when utilizing these vehicles because emerging markets, just broadly speaking, just like individual stocks, is going to be more volatile than, say, developed market indices like the S P 500, US equities. So you have to think about your own risk reward preferences. And there's definitely risks involved that go beyond um you know a developed market like the US, 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 have single stock risks. So yeah, this is definitely these are uh these single stock levered ETFs are definitely for the more aggressive investors.

SPEAKER_01:

Yeah. So if we sort of switch uh now and talk about the broader basket uh perspective funds such as KWeb, as you mentioned before, and uh KEMQ, how do you view the opportunity there in emerging markets now, given that many traditional EM allocations have legged uh tech and internet growth?

SPEAKER_00:

Yeah, I think uh, you know, you know, we've had this incredible bull market in US equities. Uh really over six the last 16 years, US stocks have outperformed non-US stocks by a very, very wide margin, about uh probably 800 percentage points. And so, you know, if you think about six, you know, yeah, that's 16 years is 64 quarters of owning these non-US equities. And I think for for many investors, they're very, very overweight US stocks. Uh, they've they've reduced their non-US uh equity positions. In many cases, it's probably zero. So, so you know, one, we think part of that is due to this index sector dysfunction where financials and energy was such a disproportionate percentage of emerging markets as well as China, which is why we created K Web and KEMQ to give you these this growth. But but you know, the other factor at play has obviously been a very strong US dollar, and that's diminishing, that the dollar's been weakening over the last two, three years. So that tailwind is becoming a little bit of a headwind. So we think there's a number of, besides the valuations of very high level in US equities, we really do believe that there's an opportunity outside of the US. We just want to give investors that growth exposure, that kind of tip of the spear, and like we've done with China, with K Web, with emerging markets, KEMQ, and now on some individual stocks.

SPEAKER_01:

And Brendan, you mentioned uh that the single stocks may be better for more aggressive traders a few minutes ago, but uh given the volatility that's inherent in emerging markets, and especially in these leveraged or high growth games, what kind of investors do you think these single stock or EM tech ETFs are most appropriate for? And what's a sensible way for someone to size in or manage exposure here?

SPEAKER_00:

Yeah, I mean, certainly these funds are going to be have an extra layer of volatility. And that volatility can work in your favor, but but I think you have to go into this eyes wide open, which is recognizing that there could be downside volatility. And and so I think you you, A, you gotta you gotta think about your own risk reward preferences, working with your financial advisor, uh, really thinking about, you know, you know, you know, am I gonna, you know, do I, do I have that risk tolerance? You know, what's my drawdown? You know, what am I thinking about? So I think all of these are factors and really, you know, ultimately risk and volatility adjusting this position. This is a small part. These single stock leverage funds are a small part of a well-diversified portfolio.

unknown:

Right.

SPEAKER_01:

And then finally, for investors watching who want to learn more about CraneShare's single stock suite or uh emerging market tech exposure, where should they go? And what resources or tools does CraneShare provide to help evaluate these opportunities?

SPEAKER_00:

It certainly we provide a wealth of information on Craneshares.com, and you can always do Craneshares.com backslash the ETF ticker, so uh craneshares.com backslash, say K E M Q. Um, and we give you all the holdings, we'll give you our fact sheet, our our presentation, our investment thesis, as well as uh, yeah, we're really in the business of providing investors all the data, all the resources in order to make an investment decision.

SPEAKER_01:

Renna, thank you so much for joining me and helping me unpack this opportunity. And thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Like Live.

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Michael A. Gayed, CFA

Host