Two months after Chinese e-commerce giant Alibaba (NYSE: BABA) went public, talk still swirls regarding which index providers will make changes to accommodate the stock and when those adjustments could occur.
The chatter is understandable as shares of Alibaba have surged more than 60% since the Sept. 19 initial public offering. “Now many index funds are considering changes to include Alibaba, but it’s still unclear when that’s going to happen. Investors who expect to see changes in the inclusion methodology are better off initiating a “risk reversal” strategy on ETFs,” reports Vikas Shukla for ValueWalk.
The issue surrounding Alibaba’s inclusion in benchmarks followed by several well-known China and emerging markets exchange traded funds is that the company does not have a listing in China, its home country. That is the same reason Baidu (NasdaqGS: BIDU), the Google of China, is absent from some noteworthy China and emerging markets ETFs.
For now, FTSE Group and MSCI (NYSE: MSCI) are not allowing Alibaba into their indices, keeping the stock from well-known ETFs such as the iShares China Large-Cap ETF (NYSEArca: FXI), iShares MSCI China ETF (NYSEArca: MCHI) and the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), though some observers speculate that index providers may be forced to make changes to accommodate Alibaba or risk losing investors.
In September, just days before Alibaba’s IPO, MSCI said it is mulling changes to its index rules that could lead to the inclusion of Alibaba. However, those changes, if approved, would not be reflected until March 2015. [MSCI Indices Could Add Alibaba]
The SPDR S&P China ETF (NYSEArca: GXC) appears to be a lock to eventually hold Alibaba.
Prior to the IPO, S&P Dow Jones Indices said, “According to our published index rules, Alibaba Group Holding would be eligible for all standard S&P Dow Jones Global Benchmarks that include Chinese stocks. In particular, it will be screened for inclusion in the S&P China BMI, and therefore the S&P Emerging BMI and S&P Global BMI, according to the index’s standard IPO addition policy.” [Strategy With China ETFs]
While established ETFs wait to add Alibaba, a crop of newer funds have been quick to add the stock. For example, the Renaissance IPO ETF (NYSEArca: IPO) and the KraneShares CSI China Internet Fund (NasdaqGM: KWEB) added Alibaba after five and 11 trading days, respectively. IPO and KWEB now sport two of the largest weights Alibaba weights among all ETFs. Both funds debuted in 2013. [A Legitimate Alibaba ETF]
Several ETFs that have debuted in recent weeks came to market with decent exposure to Alibaba. For example, the First Trust International IPO ETF (NasdaqGM: FPXI) and EMQQ (NYSEArca: EMQQ), both of which launched this month, feature Alibaba among their top holdings.
Renaissance IPO ETF
