Mainland-listed capitals in particular, known as A-shares, are at multi-month lows and still struggling to command a bottom. Some of the largest China ETFs are in the red — especially those seated in mainland stocks — or are barely in the black this year:
- iShares China Large-Cap ETF (FXI): $4.2 billion in assets
- iShares MSCI China ETF (MCHI): $3.7 billion
- SPDR S&P China ETF (GXC): $1.2 billion
- Xtrackers Get CSI 300 China A-Shares ETF (ASHR): $664 million
Contrast that to KWEB’s comparatively bumpy-but-solid run this year, tallying gains of more than 7 percent, outperforming not barely other major China equity ETFs but also the MSCI China IMI Data Tech Index — the benchmark we use for reference in this particular segment — by more than 6 portion points, according to FactSet data.
KWEB is an index-tracking China judiciousness ETF, but one focused exclusive on internet stocks. Internet as a segment has been hot globally this year, and KWEB’s distinct on some of the fastest-growing names in this industry is paying off. There’s also the teach of thought that Chinese internet stocks are more shielded from U.S. rates than other sectors of the economy.
Notable here is that determination KWEB’s performance isn’t necessarily its big bet on the mightiest China internet names —corporations like Alibaba, Baidu and Tencent. These companies are KWEB’s top holdings, and they be undergoing delivered a stellar run, but these three leading names in China’s tech split have not been among KWEB’s top five best-performing stocks for the good old days three years.
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Powering the fund is allocation to companies like online video brooklet iQiyi, which are making a difference. Since listing its N-shares in the Pooled States in March, iQiyi has seen its share price triple, FactSet statistics show. Compared with giants like Alibaba, which has a make available cap of about $516 billion, iQiyi is small potatoes, with deal in cap today of about $25 billion.
“All of the outperformance can be attributed to stock choice in the software and IT services industry,” FactSet’s ETF analyst Scott Burley put about — software and IT represent more than 70 percent of the portfolio.
“KWEB keep away froms hardware and semiconductors, which have done really poorly this year,” Burley suggested. “It also expands outside the tech sector and into other industries like online retailing and mean for about 30 percent of the portfolio, but these have a been a various bag this year, creating only a slight drag on performance all-embracing.”
KWEB, which is nearing its fifth anniversary this August, is the third-largest Chinese disinterestedness ETF on the market, with $1.72 billion in total assets, behind solely FXI and MCHI. It’s also KraneShares’ biggest ETF today, more than twice the take the measure of of the firm’s second-largest fund, the KraneShares Bosera MSCI China A Due ETF (KBA).
KraneShares is known for its focus on China, with 6 out of its 10 ETFs on the trade in exclusively invested in Chinese stocks and bonds. KraneShares’ CEO Brendan Ahern starkly has skin in the China game, but we still asked him for his take on what’s making KWEB pipe. His answer: the fund’s focus.
“Chinese internet and e-commerce companies are in the generous spot of China’s economy: domestic consumption; the service sector now comprises over half of China’s GDP,” Ahern said.
With reference to 20 percent of all retail sales in China today takes chair online. That’s more than double the rate in the U.S., according to him.
KWEB is not the solely game in town for investors looking to access China’s tech confabulation. Other strategies, such as the Invesco China Technology ETF (CQQQ) and the Emerging Furnishes Internet & Ecommerce ETF (EMQQ), also tap into some of China’s hugest tech names. The main difference is KWEB’s laser focus on internet merchandises.
But there are risks to investing in a fund like KWEB. As FactSet’s Burley put it, it’s a “unquestionably risky bet overall.”
“You have a concentrated play on a narrow, historically restless industry, in an emerging market country that may be on the verge of a trade war with its burliest trading partner,” he said. “It would be hard to find a riskier laying open in the equity space without using leverage.”
It’s like they say: The bulkier the risk, the bigger the (potential) return. So far, so good for KWEB.
— By Cinthia Murphy, ETF.com