ETFs are a highly competitive business, and if a new player tries to edge into a market dominated by a couple of fund sponsors, the unfamiliar entrant will need an edge.
For instance, new provider KraneShares recently launched two ETFs that captures the Chinese markets with a different investment perspective.
The KraneShares CSI China Five-Year Plan ETF (NYSEArca: KFYP) is the only U.S.-listed China ETF that specifically allocates holdings to cover targeted growth industries based on China’s current fiscal and domestic plans, or Five-Year Plan.
China is currently trying to shift its focus away from an export oriented industry and focus more on sustainable domestic growth.
“The new leadership in Beijing wants to re-orient the economy to stable and moderate growth as opposed to credit fueled double-digit expansion,” Brendan Ahern, Managing Director of KraneShares, said in a phone interview.
Tencent holdings and Baidu make up a large portion of the portfolio, accounting for 14.0% and 13.0% of KFYP, respectively, followed by a 3.2% exposure to Want Watn China HDGS, 2.4% in Hengan International and 2.2% in Belle International Holdings.
KFYP holds companies in targeted sectors of China’s 12th Five-Year Plan, including technology 36%, consumer discretionary 16.6%, industrials 15%, consumer staples 14.6%, materials 6.4%, utilities 5.8% and healthcare 5.6%. Investors will note the exclusion of financials and energy sector plays, which have been weighing on the economy. In comparison, other broad China ETFs have significant exposure to financials, some up to 50% to the sector.
The current Twelfth Five Year Plan (2011-2015) focuses on increasing domestic consumption, modernizing agriculture through mechanization and improvement of agricultural service businesses; encouraging stable urbanization; promoting energy saving and environmental protection; and encouraging domestic technological innovation. [A Quirky New China ETF]
Ahern explains that KFYP provides U.S. investors with a “Chinese person’s perspective of where the country is going.”
Top holdings include Baidu 10%, Tencent Holdings 9.7%, Qiho 360 Technology 8.4%, Netease 7.4% and Ctrip 7.0%.
“There are 180 million broad band users and 464 million mobile users in China,” Ahern explained. “There is still room to grow.”
The KraneShares internet ETF, though, will be going up against two other China tech sector ETFs, the Guggenheim China Technology ETF (NYSEArca: CQQQ) and the Global X China Technology ETF (NYSEArca: QQQC).
For more information on China, visit our China category.
Max Chen contributed to this article.