November 6, 2023

Megatrends poised to propel
emerging markets

Guest: Kevin T. Carter, Founder and CIO of EMQQ Global

In this episode of Markets in Focus

A steady flow of concerning news from China has caused an extended downturn for emerging market stocks. Still, in his interview with Matt Orton, CFA, Chief Market Strategist at Raymond James Investment Management, renowned EM investor Kevin T. Carter noted that he believes the long-term growth trends for these markets remain intact. A rising middle-class is eager to purchase the consumer goods that have long been available to residents of developed markets. The growing use of smartphones is also making access to consumer goods much easier. Carter believes India, in particular, could be the next major EM growth story.

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Matt Orton:
As volatile as U.S. stock and bond markets have been recently, emerging markets [EM] have had it even worse. Emerging market stocks are currently in one of their longest bear markets, with the MSCI Emerging Markets® Index down over 30% from its February 2021 peak. The cause of this poor performance has a lot to do with China and its regulatory crackdowns on global technology franchises and the negative impact that zero COVID [policy] has had, interrupting economic momentum.

But I think we often forget that China isn't a monolith. And while China is also a major trading partner to nearly all the other emerging market regions, the broader emerging market complex is, or should be, much more than just China. Investors can still find growth inside and outside of China within emerging markets, which is one of many reasons why I think this is a very interesting time to be talking about emerging markets.

This is Markets in Focus from Raymond James Investment Management. I'm your host, Matt Orton, and I invite you to join me and my colleagues as we discuss the latest trends and developments driving the markets. Visit us at for additional episodes and insights.

Today, I am lucky to be joined by a pioneer in our industry, Kevin Carter, who I think will provide you with some very interesting and tangible ideas and reasons to be excited about emerging markets. And just bear with me, I want to go through his bio just so everyone can get a good sense of his background and why we're so lucky to have him joining us. Kevin is the founder and chief investment officer of EMQQ Global, which is an investment management and research firm focused on the emerging markets and frontier markets technology sector.

Today, I am lucky to be joined by a pioneer in our industry, Kevin Carter, who I think will provide you with some very interesting and tangible ideas and reasons to be excited about emerging markets. And just bear with me, I want to go through his bio just so everyone can get a good sense of his background and why we're so lucky to have him joining us. Kevin is the founder and chief investment officer of EMQQ Global, which is an investment management and research firm focused on the emerging markets and frontier markets technology sector.

So, Kevin, maybe we can start by spending just a few minutes on the very basics, what is technically considered an emerging market versus a developed market or frontier market country? And how are companies, by extension, influencing the respective country's weight in to the index?

Kevin T. Carter:
Sure. Well, thank you for having me Matt, and thanks for the introduction. As it turns out, there's actually no official definition of what an emerging market is. And there's a number of different organizations that classify countries in that way. When we talk about investing, the index, if you will, the benchmark for emerging markets is the MSCI Emerging Markets Index. So, if we're going to look at where most people are benchmarked, that is the definition, the MSCI Emerging Markets Index.

And, basically, the way that countries are classified, the main way is by what's the per capita GDP [gross domestic product]. How much money is everybody making? And to be a developed market, you basically have to have that number be at $25,000 or more. And if you're below that, you're going to be either emerging or frontier. If you're in the $6,000, $8,000, $10,000, $12,000 range, that's sort of the sweet spot for emerging markets. But you do have countries like India, which have GDPs per capita of less than $3,000 that are emerging. So, there's other factors that go in, including currency trading and other more technical trading elements. And this is something that may be more and more in the investment news soon as Korea, which has long been considered a developed country by a lot of people, as MSCI grapples with how to treat the Korea situation.

Matt Orton:
Great. And then how do companies get added to the index? Because I guess, at the end of the day, it's the company weights that then ultimately determine the country weights within the broader index, right?

Kevin T. Carter:
Sure. So, the broad index is the MSCI, the FTSE [Emerging Index]. Importantly, the FTSE index is not that important in many ways, but it is important because the Vanguard [FTSE Emerging Markets ETF], which has the largest emerging markets ETF, that fund tracks the FTSE Index. But the main way they get it is that the database says that they are an emerging market stock. And every country gets put in the database with a country code. And usually that country code's accurate, it's at least accurate in terms of where their headquarters are. It's not necessarily accurate in terms of where their revenue and business is, which is a problem, an increasingly big problem, in emerging markets.

But the MSCI Index includes, I think it's the top 85% of the market cap of all emerging markets. And of course they have a list of all the countries. And China, being the biggest, [and] India [the second biggest]. And if you wanted to think about it by region in terms of the percentage of the index, which also generally corresponds with the population weight and the economic weight, this is about a 60% in Asia story. So, it's China, Southeast Asia, India. That's 60% of the story. It's about 15% Latin America, with Brazil and Mexico being the biggest part [of that]. And then the other 25% is spread all over the place -- South Africa, the Middle East and North Africa, Eastern Europe, Central Asia, Kazakhstan, places like that. So, that's what it looks like on the map. But in terms of the companies themselves, if you're headquartered in any emerging markets and you're publicly traded, as long as you're one of the largest ones, you'll be included in the MSCI Index.

Matt Orton:
Great. I think that's really helpful background, and it’ll tie into the next area I want to touch on, which is performance. Because like I alluded to at the start, the performance of the broader emerging market indices has been volatile, to say the least, over the past five-plus years. And more often than not, it's underperformed the U.S. Toward the end of last year, and really into this year, we're finally starting to see international developed markets outperform. But performance at the EM index level has lagged. I want to get your perspective why you think now is an interesting time to be looking and investing in emerging markets.

Kevin T. Carter:
Okay. Well, let me first talk about the indexes in the emerging markets. And when I say the indexes, I mean the MSCI Emerging Markets Index and the FTSE Emerging Market Index, but also the single-country indexes. And this was one of the first things I learned about emerging markets. So, Matt, I think we talked about this before, but I got involved with the emerging markets 17 years ago when my partner Burton [Malkiel] got quite interested in China. And I had a bunch of people that had read about Burton's research on China, and they had asked me can I help them invest in China. And so my immediate response was, "Sure, let's look at the China ETF."

And so I asked our portfolio managers back then to give me a list of all the companies in that fund. There was one China ETF 17 years ago. It was the first and only China ETF back then. And I assumed that's what we would use to get the exposure. And I asked for the list because, as you know, I'm an Omaha person. And I don't care what the name of the fund is. I want to know what the businesses are that we're going to become owners of. And so I asked for the list. And then Burton explained to me that when I got the list, I was going to see that it was all government-owned banks and oil companies. And that didn't sound very good. But then he went on to explain how these government-owned banks and oil companies worked. And essentially they're not there to grow the value of your stock holding. That's not their main goal. It's not even on the list.

And the China ETF was 80% invested in those companies. And in Omaha, investing's really simple. Earnings is what makes companies' value. You make profits for the owners, and that's what makes people want to own you. And the way you grow your value is by growing those profits. And if 80% of the companies are systematically not trying to do that, it didn't really make any sense that that's how you would invest in China.

Now, if we look back over the last 15, 16 years, the China economy's grown by, I don't know, 600%, 700%, 800%. And the return of the original China ETF is negative 30%. So you've had this incredible story of economic growth, but if you tried to invest in it by buying the traditional index, you lost a good percentage of your money.

And now the broad MSCI index isn't as bad as the China index was, but it's still about a third in state-owned enterprises. And so, these are troubled businesses. And then you also [have an issue] in emerging markets that you don't really have so much in developed markets, you have these legacy multi-generation, family-controlled companies. And there might be four different publicly traded businesses, and they do business together. They own shares, cross share ownership, and [you have] the chaebols in Korea, and then of course you had the oligarchs in Russia. So, the problem in emerging markets from the time I got involved, I could see it, it's the index itself. It might be a good way to track the performance of all the publicly traded companies, but if you want to make money, it's I don't think a very good way to invest in. It's proved that to be the case with its essential complete lack of any return in the last 15 years.

Matt Orton:
Yeah. That is really interesting and helpful context. So then, if you extend that a little bit, Kevin, obviously you're focused on technology, so that's clearly been an area where you found opportunities. Maybe you can talk a little bit about what that technology opportunity looks like right now across EM, whether it be in China or in India or other countries.

Kevin T. Carter:
So, as I tell people about my 18 years in emerging markets, there's really two things to know. The first and most important thing is that when you take the whole thing apart and look at it, the thing that's emerging are six and a half billion people that want stuff, right? You've got 85% of the world's people, and they don't have the things we have. They want them. They want more and better food, more and better clothing. They want heaters and dishwashers and appliances. They want to go to movies and take vacations. They want an automobile or some other type of vehicle, and they want their kids to go to Harvard. And that's the story.

I didn't have to figure this out by the way. This was well documented 17 years ago when I got involved. And every major consulting firm and investment firm has a 100-page white paper with a lot of charts and graphs showing you that there's a huge wave of people out there that are coming into the consumer class. And McKinsey calls it the biggest growth opportunity in the history of capitalism. So, this is a big deal, and it's what everybody should be focused on in emerging markets. And it ultimately becomes the foundation of this technology story.

The second thing about emerging markets, I already told you, the index itself is terrible. If you want to make money, you can't expect it if you're using the traditional broad types of approaches that have disappointed people, and I think will continue to disappoint people. And by the way, I would add, Matt, you're likely familiar with the term value trap. I think that emerging markets, if you use the index, they've become the biggest value trap on the planet. Because time and time again, people look at emerging markets and they say, look at this. The PE [price-to-earnings ratio] of the MSCI Emerging Markets Index is 10, and the PE of the S&P [500 Index] is 20. So, it's half price, and the economies are growing twice as fast as ours. So I'm getting twice the economic growth, it's half the PE multiple. How can that not be a bargain? And so this is the problem. I don't have a solution for this problem, Matt. But the index itself is the problem in emerging markets.

But going back to the consumer story. So, it didn't take me long to realize that if you wanted to invest in emerging markets, if you were an Ivy League endowment, like David Swensen at Yale, you could do a lot of things to invest in emerging markets. You could start a private equity fund in China with Chinese alumni who had worked in the endowment and do things like that. But most people, and certainly financial advisors, were limited to ETFs, mutual funds, et cetera.

And when people would ask me what's the best emerging markets ETF, I never told them to buy one of the China products that I had launched with Guggenheim, which Invesco now owns. But I would tell them to buy the emerging market consumer-focused ETFs. And there were emerging market consumer-focused ETFs. And if you believed McKinsey, just buy that, and you'll own the 30 largest emerging market consumer stocks. And that's what I told people for years.

And then it was nine years ago that a friend of mine called and said, "Hey, what's the best emerging markets ETF for my three-year-old daughter?" And I started to tell her to buy the emerging market consumer version. And then I realized that consumption was changing. It was changing largely because of the smartphone. And now it wasn't as clear to me then as it is now, but basically what's happening with technology in emerging markets is a very big deal. And, if you want to simplify it, it's basically three trends that are sweeping the planet. Three so-called megatrends that I've been part of and my family's been part of for generations, and likely yours as well. But most of the emerging markets are just getting started.

So, those three megatrends that are happening are first that consumption wave, which I mentioned. Myself, I had plenty of food as a child. And we went to Disneyland, and I think we went to Hawaii once or twice. My parents had cars, and we went to movies. And my brothers and I were the first ones to go to college. But most of the world's just getting involved with that. So, that's the first megatrend.

Now, when my friend called me that day nine years ago, I answered her call on my iPhone, my first iPhone, which was sitting on my car seat next to me. So, I had a smartphone back then, but it was pretty new to me. I'd made maybe had it for a year and a half or two years, but I could already see how it was changing my consumption and my family's consumption.

My family had been going to the Target store four times a week, and all of a sudden those numbers started to go down. And I knew the name of the UPS driver all of a sudden, Mark. And so I could see that that smartphone was changing what was happening at my house. But what I didn't appreciate was that most of the world, they didn't have a computer before. I mean, I had a computer for 20 years before I got a smartphone. Well, the reality is that most of the world has never had a computer, and they're getting their first computer today. So, the second megatrend is the computer. But the vast majority of the world will never know a desktop computer. They will know an Android-based smartphone that costs $60 brand new. So, that's the second megatrend. Something that, again, I had access to a computer in 1988 when I got to college. My roommate had an Apple computer that we wrote white papers on and so forth. The computer's the second part of the story.

And then what's happening is that when these people get that first smartphone, it's also giving them the internet for the first time. I got the internet in 1995 on a telephone line with a modem in San Francisco. And it's certainly gotten better since then, but most of the world's never gotten wired. And so not only are these billions of consumers showing up, they're getting a computer, they're connected to the internet for the first time

And to magnify the whole thing, these people don't have the consumption infrastructure we think about. They don't have, first and foremost, a credit card or a debit card or a bank account. And they don't have a car and they don't have a Target store to go to, even if they had a car. And so these people are leapfrogging what we think of as traditional commerce. And they're more digital than we are. And it's created what I think is the fastest-growing sector on the planet today, if not ever frankly, in terms of revenue growth for public companies.

Matt Orton:
So when you then triangulate that, Kevin, so you've got these three megatrends, there's some very, very specific areas where there should be a ton of growth and opportunity going forward. How do you then narrow that down? How do you identify the specific industries or companies that are going to pay you those dividends over the long term?

Kevin T. Carter:
Sure. Well, I think that, frankly Matt, it’s pretty simple. We've already seen it happen. We know what happened in the United States. We know the FAANG stocks took over our lives and ultimately our stock market. And so the way to think about this is in three waves. The first wave was the United States wave.

So, if we go really high level, and it's always sound strange to talk about this, but if we step back and say, okay, when in the history of the world did human beings first get personal computers in meaningful numbers? And when could those people then connect those personal computers to the internet via a cable? And when could they then open their computer and on the computer they could open a browser, and then they could go to a website and they could do some kind of business. They could buy something or sell something. Basically that started in the year 2000, right? I mean, I had a computer before, and I had the internet in 1995, and I probably bought something on Amazon in 1997 or '98. But in terms of when did this really get going, let's say that was the year 2000. And what we saw was this 15-year S-curve of growth as the FAANG stocks took over our lives and our economy. And that started on PCs [personal computers], it moved to the smartphone as the smartphone showed up. That was the first wave.

China, the biggest emerging market, was the second wave. China was basically right behind us, call it 2005 to 2020. And you saw the Chinese super apps and a lot of other large Chinese companies that have mostly gone public here in the United States, you saw them become giant and really dominate the emerging market indexes. And this is what's unique in the emerging market story. They weren't just companies that were social networks or e-commerce. Once they got 100 or 200 million people for e-commerce or gaming, then they began to get the money on the phone. Because people didn't have bank accounts and to pay for their products, they wanted digital payments. So, these Chinese internet companies, the giants, introduced mobile payments, and all of a sudden they became the bank. And so imagine if the largest U.S. e-commerce retailer that everybody uses, imagine if they also had your checking account and your brokerage account and your car loan. That's happening in the emerging markets because the bank accounts and the traditional banking never took root the way it did here.

But China was that second wave. And you saw these Chinese platform companies, basically, you can call them technology companies, but in a smartphone-centric world, they digitized and scaled up companies within themselves in healthcare, which are now public, in entertainment, which are now public, in food and groceries. The Whole Foods of China, which is a highly digitized business called Hema, will likely end up going public at some point. And they also digitized the money. And so that was the second wave.

And when we look back at the revenue from the emerging markets internet sector and its incredible growth rate over the last decade, 80% of that was from China companies. And China has 1.3 billion people. And while China might be an emerging market in a traditional sense, when it comes to smartphones and e-commerce and digitization, China's the most developed country on the planet by a mile. I mean, China really is the Jetsons. And China's e-commerce market is four times bigger than all other 45 emerging markets combined. So, it really is on its own league.

But now the third wave is coming, the third wave of the internet consumer is coming. And it's going to be the biggest part of it. There's five and a half billion people that are just getting started with computers and the internet. And that's India, that's the rest of Asia, that's South America, that's Africa. And I think in the next decade we're going to see a huge amount of growth in those areas.

Matt Orton:
And so, yeah, you've mentioned India. For anyone who listens to me, I talk a lot about India, as well, as a large investment opportunity. Since we're running a little shorter on time, I want to make sure I ask you a question on India. Because you've mentioned a lot of the technology buildout and infrastructure, digital infrastructure, but what about physical infrastructure? Clearly to support growth in India that's going to be, I would think, a meaningful opportunity. What are your thoughts there, Kevin?

Kevin T. Carter:
I am a huge believer in India in the next 10, 20 years. I think everything is in place there. I think they have a foundation, an infrastructure that includes multiple layers. First of all, India, they've had a technology industry for 50 years. The Infosys, the Wipro’s of the world, these are publicly traded multi-billion dollar companies that date back decades. So, they've got that going. If you look at the technology talent on the planet, India has by far the most robust, well-educated technology people. Two-thirds of our immigration visas or work immigration visas go to Indians. Two of those Indians that started on temporary work visas, one of them runs Google and the other one runs Microsoft now. So, there's no shortage of proven skills and talent in the Indian ecosystem..

The physical infrastructure, this is where China pulled away from India 17 years ago. When I got involved, India and China were pretty close on most economic measures, but China was able to do the extensive physical infrastructure, build out trains, ports, et cetera. And India, because of its democracy, had a lot of bureaucracy. And it never really got going and was sort of flat-footed. But Prime Minister Modi, who's now in his 10th year in India, is very powerful. He has a huge approval rating. And he's all in on bringing the country up to date. And they have a trillion and a half dollar infrastructure plan that's extensive.

And I was in Bombay in March, and it felt almost exactly like Shanghai did 17 years ago when I first went there. So, the physical infrastructure's going. That's trains, that's airports, it's physical seaports. Now, having said that, India's going to get a lot of jobs from this move to be less dependent on China. But China still has the seaports and the ports can't be built quickly. So, India will compete, they'll get more manufacturing jobs, but it's going to be hard to displace China.

But the most important thing that India has, and this wasn't completely clear to me until recently, and I strongly suggest people take a look at this, India has a digital public infrastructure that they built. And that's kind of an abstract term. But essentially the government initiated several policies and programs going back to 2010. The first one, Aadhaar, The Foundation, that's what it translates to literally, was a 12-digit national identity system. There was no national identity system in India, and less than half the people born were even reported to the government. And, so it's kind of hard to have a formal economy if nobody can prove who they are.

And they wanted to launch this basically like a Social Security number system. And they tapped Nandan Nilekani, the founder of Infosys and chairman of Infosys, to oversee this project in 2009. And he insisted that they digitize it and that they not just issue a number, but that they capture biometric information, including fingerprints and an iris scan so that every human could be tied directly back to the number. And it was voluntary when they launched it. And now there's 1.3 billion people in the country on that.

And now, again, I knew they did it and it made sense to have people in the system, but I didn't quite appreciate the power of that system as the world digitized. And what they did soon after they launched it was they introduced another layer where, now this is a largely unbanked society, anybody could walk into a bank if they were part of the system and put their hand down and look at a camera and instantly open a bank account. So, all of a sudden you've got 1.3 billion people in the system and with bank accounts. And they built a number of layers on top of this, a payments layer where anyone can transfer money to anyone else with no friction.

And as an example of how powerful this system is, Reliance Industries launched the first 4G mobile network back in 2016. And when they launched it, they said, "We'll give you six months of unlimited free data, and you'll always have free voice." And they had a very ambitious goal, which was to get 100 million subscribers in the first 100 days. Now back then in India, to get a mobile connection, whether it's a flip phone or a smartphone, you need proof of identification. And that meant bringing power bills to the phone store or other proof of where you might live or be. And it took several days before they would approve you and give you a phone.

When Reliance Jio launched their Jio Digital network with their 100 million person goal, they attached the signup to Aadhaar, the digital identification system. And so people could walk in, put their hand on a screen and look in a camera, and in three minutes get a smartphone and walk out the door. And they reached the 100 million subscriber goal. So, now you've got 500 billion people on Jio with the lowest cost of data in the world. And now in the last three years, the whole economy's gone from paper-based, not in the system, not taxed, to digital and online. And the mobile payments numbers are exploding. And I don't think we quite understand yet the power of this platform they've built, this India stack, but it is pretty clear it's going to pay a lot of dividends.

Matt Orton:
Yeah, it's pretty incredible when you think about it, and just the scale of numbers and the sheer population, and what more there is to come. And as our listeners know, I always like to conclude with what are the potential risks? And so I want to ask that to you as well. Near term, long term, what would you summarize as the largest risks to this very exciting growth story

Kevin T. Carter:
Well, there's all sorts of risks. Obviously the broader story of all emerging markets, internet companies, China's the biggest part of that, and there's all sorts of noise and fear and risks around China. The things that people should not worry about are the things that they have worried about for the last two years, which are the delisting risk, which people should have never really been afraid of that, but that was a risk that went away. And then of course, the China tech crackdown, which people worried about, which to me, having been involved with China and understand it pretty good, I never thought that was a crackdown at all. A lot of tech companies, including ours, are in the crosshairs and paying fines.

So the risks though to China are just the ongoing tension between the United States and China. I know some people think that Taiwan will become a real flashpoint. I do not share that opinion. In terms of the India story, which I've been pretty heavily focused on recently, as you know, I'm struggling to find a real risk. I'm asking all the people that seem like they should know better than me. And some of them are telling me that the world's underestimating India's growth.

But in terms of the things that are obvious about India, climate change is a real problem. I mean, South Asia, India, that whole area has a lot of water. And there's been flooding and there's already a lot of soggy land in the southeast part of that area. And so as the sea levels go up, that's a risk. India has a really bad heat problem right now. Delhi, some people are worried that part of India could become uninhabitable because of the heat, that is forecast to be at least plausible there at some point in the future. So, there's a lot of risks. We've got wars going on right now. And so the world's a scary place. Emerging markets are a volatile place. But I think that no matter what happens, there's a one directional move towards a smartphone-based world. And while we've been in that world for 10, 12, 13 years, 85% of the world's people are just getting started. And that's going to happen for a long time.

Matt Orton:
That is perfect way to end this. I mean, this has been a fascinating enlightening discussion. I definitely want to go further into detail the next time we have you. But Kevin, thank you so much for joining us. Thank you so much to our listeners as always. And until next time, take care.

Thanks for listening to Markets in Focus from Raymond James Investment Management. You can find additional episodes and market insights at You can also subscribe to our podcast on Apple Podcasts, Spotify, or your favorite podcast app. Until next time, I'm Matt Orton.


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4G is the fourth generation of broadband cellular network technology, succeeding 3G and preceding 5G.

China’s “zero-COVID” policy is an attempt by the Chinese government to limit outbreaks of COVID-19 through lockdowns, mass testing and quarantines.

China’s “zero-COVID” policy is an attempt by the Chinese government to limit outbreaks of COVID-19 through lockdowns, mass testing and quarantines.

Delisting occurs when a company is removed from a stock exchange. It has been occurring most prevalently recent as once U.S.-listed Chinese companies have removed from U.S. stock exchanges, either because of a decision by the company itself or securities regulators concerns about the lack of access to company audits.

TThe FAANG stocks are the five most prominent U.S. technology companies: Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet).

GDP per capita is a measure of a country’s economic output per person. It is calculated by dividing the gross domestic product (GDP) of a country by its population.

Oligarchs are affluent business leaders with considerable political influence who benefitted from the privatization of businesses after the collapse of the Soviet Union.

A PE is a company’s price-to-earnings ratio, which measures a company’s current stock prices in relations to its earnings per share of outstanding stock.

An S curve is the standard pattern of a business’s growth that can be tracked in four stages. First, the initial slow growth period, followed by rapid growth, then by late-stage slower growth, and then the final stage when demand remains steady or even begins to decline.

A technology stack is a set of technologies that are stacked together to build any application.

A value trap is an investment with low valuation metrics – such as price-to-earnings, price-to-cash flow, or price-to-book value ratios – that make it appear to be inexpensively priced. Investors who buy into the investment because of its low price or other indicators of value can come to find that the investment continues to underperform or drops further.


The MSCI Emerging Markets Index captures large and mid-cap representation across emerging markets countries that include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.

The FTSE Emerging Index is a market-capitalization weighted index representing the performance of around 850 large and mid-cap companies in 22 emerging markets.

The S&P 500 Index measures change in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested. The S&P 500 represents approximately 80% of the investable U.S. equity market.

M-450830 Exp. 11/06/2025