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The Best Way to Invest in the Next Alibaba

6 | By Michael A. Robinson

Think back to last fall.

No other business story took up more column inches and more TV time than the Alibaba Group Holding Ltd. (NYSE: BABA) initial public offering (IPO).

The Alibaba IPO remained the world’s top business story for months on end because of the immense amount of wealth it drew in and then created.

This was an early-stages opportunity in a tremendously high-growth business – e-commerce – in China, the world’s fastest-growing large economy.

Now, imagine that you had the chance to invest in Alibaba before that IPO.

Today, I’m bringing you just that sort of opportunity.

With China slowing down, India and its 1.25 billion people are poised to become the world’s fastest-growing big economy.

And that’s why I was thrilled to discover the “secret” play that insiders are using to invest in the “Alibaba of India” years before its IPO.

Let me share it with you…

Lunch With an Insider

We can thank Kevin Carter for this find.

I recently had lunch with Carter, the chairman and CEO of the San Francisco-based Big Tree Capital investment management firm, to discuss tech investing philosophies – and the ways he’s discovered to get in early on India’s most exciting company.

Carter is one of the world’s leading authorities on investing in tech firms in high-growth markets like China, India and Argentina.

And during that lunch, Carter couldn’t stop talking about the best e-commerce opportunity in India. He calls Flipkart Internet Pvt. Ltd. the “Amazon.com of India.”

Launched in October 2007 as an online bookstore, Flipkart is now the second-most-populous nation’s leading e-commerce marketplace.

And Carter’s comparison of the firm to Amazon.com Inc. (Nasdaq: AMZN) is dead on. Besides 20 million registered users and roughly 3.5 million site visits daily, Flipkart was founded by two former Amazon execs – Sachin Bansal and Binny Bansal.

And while Flipkart has a long way to go to reach Amazonian strength, it’s growing fast.

In July, Flipkart completed a $1 billion round of venture funding. That raises its pre-initial public offering (IPO) valuation to $7 billion. (Flipkart plans to make its IPO in the next two to three years.)

Now, before I share with you the hidden play that allowed Carter to invest in Flipkart, let me tell you a little more about him.

Finding “Moats” Early

Carter and I met for lunch at Postino, a wonderful suburban Bay Area Italian restaurant. And over our pasta, I learned quite a bit about Carter’s very interesting career.

He’s a former stock analyst who ended up a serial entrepreneur. Back in the late 1990s, he invented a trading platform that allowed investors to buy and sell fractions of shares, which he sold to E*Trade Financial Corp. (Nasdaq: ETFC) in 2000.

Though he is now focused on growth firms, Carter considers himself a fundamentalist. His big investing hero is Warren Buffett.

“I pray toward Omaha,” he says.

So, how does a “value investor” like Carter end up tackling high-tech, especially in faraway markets?

For Carter, the transition makes a lot of sense. After all, he focuses on firms that have “durable competitive advantages” – or “enduring moats.” That’s Buffett’s term for companies with advantages that make it difficult, if not impossible, for other firms to move in on their turf.

Think of the unbeatable brand of the Coca-Cola Co. (NYSE: KO) or the low cost at GEICO.

Or the early and unique online presence that competitors simply can’t catch up to – which Amazon, Alibaba and Flipkart all have in common.

The Insiders’ Play

Carter tells me he was able to invest in Flipkart through Naspers Ltd., (JSE: NPN) a company few U.S. investors even know about.

Based in Cape Town, South Africa, Naspers is an e-commerce conglomerate. It owns dozens of tech properties in Africa, China, Brazil, Russia, India, Southeast Asia and the Middle East.

And it’s a major investor in Flipkart. Of the $1 billion Flipkart raised last summer, $242 million came from Naspers.

That makes its stake in Flipkart 16.6%.

As much as I love “backdoor” opportunities like Naspers’ investment in Flipkart, there’s one problem. The stock is traded on the Johannesburg Stock Exchange.

That makes it difficult for most U.S. investors to get involved. There’s a version traded here over the counter (OTC ADR: NPSNY). But that OTC stock costs $145 a share, and it’s so thinly traded that I don’t recommend it to retail investors.

Fortunately, Carter has us covered.

The Play We Should Make

Carter runs the Emerging Markets Internet & Ecommerce ETF (NYSE: EMQQ) that I first told you about on Dec. 5.

Naspers is the fund’s third-largest holding and accounts for 7% of its portfolio. And that means we can grab a chunk of Flipkart now – years before its IPO – with Carter’s ETF.

EMQQ offers patient, long-term investors a lot of upside.

The roughly 40 companies EMQQ holds are growing their sales at a compound annual rate of 45% – meaning they’re doubling in size roughly every 19 months.

That means this entire ETF meets Rule No. 4 of my five-part strategy for building tech wealth – “Focus on growth.”

Carter says the ETF “takes advantage of key global demographic and economic shifts.”

Emerging markets make up 80% of the world’s population of 7 billion people. Carter cites a study by McKinsey Global Institute that says annual consumption in emerging markets will reach $30 trillion by 2025, up from $12 trillion in 2010, and account for nearly 50% of the world’s total annual consumption, up from 32% in 2010.

That’s twice the size of the current U.S. economy.

McKinsey describes the rise of emerging markets as “the biggest growth opportunity in the history of capitalism.”

While India is rising, Chinese firms still represent the majority of EMQQ’s holdings. At 8% of the fund, Alibaba is EMQQ’s largest holding.

As for EMQQ’s other large holdings, take a look:

  • Baidu Inc. (Nasdaq ADR: BIDU) boasts more than a 60% share of China’s search traffic. And according to IResearch, Baidu captures more than 90% of China’s online search advertising market.
  • Tencent Holdings Ltd. (OTC ADR: TCEHY) is another broad play on China’s burgeoning Internet sector. Tencent provides online payments, social networks, gaming, advertising, music and video.
  • Yandex NV (Nasdaq: YNDX) is known as the “Google of Russia.”
  • MercadoLibre Inc. (Nasdaq: MELI), based in Argentina, is Latin America’s dominant online auction house.

EMQQ has lagged the overall market since it launched in November. It’s down about 10%, compared with a roughly 1% decline for the Standard & Poor’s 500 Index.

In other words, this is not a short-term investment or one to practice your “timing” skills on – and Carter agrees.

“First of all, I’m not a market timer,” he says. “I don’t believe in market timing. I’ve been in this business a long time. I’ve never met anybody who can time the market, and I haven’t met anybody that’s met anybody who can time the market. So, if you find that person, then tell me who it is. 

“I think of this as a long-term investment. I think you’ve just got to buy along the way and dollar-cost average. If you’ve got $1,000 to put in, put in $500 now or $200 now, and then buy more later. With this kind of an investment, there’s no right or wrong.”

That’s what you’d expect to hear from a fund manager – but I fully agree.

Priced at just $23, EMQQ provides access to some of the world’s top e-commerce companies at a fraction of the price you’d have to pay for the individual stocks.

This ETF offers tech investors a great long-term way to invest in a group of excellent high-growth firms – making this is a unique hybrid play.

EMQQ is not only harnessing the power unstoppable revenue growth.

It’s also the kind of “Road to Wealth” foundational play you can afford to hold for the long haul, giving your portfolio stability and price appreciation for years to come.

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6 Responses to The Best Way to Invest in the Next Alibaba

  1. Marnie Jacobsen says:

    This certainly sounds intriguing. Emerging markets especially with their population numbers,growing per capita wealth and Internet connectedness that is shrinking the world seems to have an investment potential in the longer term.

  2. aram says:

    So, you are suggesting to invest in Flipcart by investing in a fund that has fraction of its investments in another fund, which has fraction of its investments in Flipcart?

    Then just how much Flipcart must rise to generate enough return for holders of EMQQ? Then, what about risks associated with oil-producing emerging countries? What about risks with currency rates of such countries? They will definitely drag EMQQ down, so
    Flipcart needs even higher appreciation to turn EMQQ into worthy investment!

  3. Jacques Despres says:

    You have promoted Alibaba so much that we could not do anything but BUY IT.
    Because we were Canadian, we could not buy it Under 100.00 +, I paid 114. and some 116.00. As of yesterday it reaches a bit over 85.00. How, so many experts from the same company can recommand ALIBABA and get that kind of result within a few months? Hard to understand,

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