Chinese e-commerce giant Alibaba is expected to list its shares on the New York Stock Exchange on Sept. 16 and in the run-up to what is the most widely anticipated initial public offering since Facebook (NasdaqGS: FB) over two years ago, there has been ample chatter regarding which exchange traded funds will house Alibaba.
Due to a combination of its listing venue and its decision to incorporate in the Cayman Islands, the number of ETFs that could Alibaba following the IPO is dwindling and smaller than many ETF investors had hoped for. [Dwindling ETF Options for Alibaba]
One ETF that will make room for Alibaba is the KraneShares CSI China Five Year Plan ETF (NYSEArca: KFYP). Like its stablemate, the KraneShares CSI China Internet Fund (NasdaqGM: KWEB), KFYP has the flexibility to add Alibaba 11 days after the IPO.
KFYP is often overlooked compared to other China ETFs, but that should not be the case. The ETF’s performance says as much. Since debuting in July 2013, FKYP has surged 38.5%, nearly double the performance of the iShares China Large-Cap ETF (NYSEArca: FXI) over the same period.
KFYP holds companies in targeted sectors of China’s 12th Five-Year Plan, including technology, domestic consumption, clean energy, industrial and healthcare. The 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
The fund does offer plenty of exposure to some of the most recognizable (and high-flying) Chinese Internet stocks. KFYP allocates a combined 54.1% of its weight technology and consumer discretionary stocks. Six of the ETF’s top-10 holdings, a group that comprises about 48% of KFYP’s weight, are Internet stocks.
KFYP’s Internet and discretionary holdings include Tencent Holdings, Baidu (NasdaqGS: BIDU), Ctrip.com (NasdaqGS: CTRP) and Vipshop Holdings (NYSE: VIP), a stock that has notched a legendary showing over the past two years. That is a group that it makes sense to add Alibaba to. [Vipshop ETFs]
Valuation estimates for Alibaba range from $150 billion to $200 billion, but even at $150 billion, the company would be nearly twice as large Baidu. Baidu accounts for over 15.4% of KFYP’s weight, indicating that if Alibaba meets or exceeds that $150 billion valuation, the company will easily be one of KFYP’s largest holdings.
KraneShares CSI China Five Year Plan ETF Top-10 Holdings
Chart Courtesy: KraneShares
Tom Lydon’s clients own shares of Facebook.