China’s economic outlook has been something of a mixed bag over the last several weeks as the country’s real estate uncertainty lingers. That said, China investing remains a major consideration for investor portfolios in the U.S. and around the world. Not all sectors in the country’s economy have the same real-estate-related uncertainty looming over them, however. Indeed, the KraneShares China Internet and Covered Call Strategy ETF (KLIP) and its approach to Chinese internet stocks can appeal as it hits a new AUM threshold.
The fund tracks an index of China-based internet stocks, the CSI Overseas China Internet index. On top of that index, it also sells one-month at-the-money call options on the total portfolio. KLIP looks to add a little yield to its growthier holdings via its FLEX call options.
The options can only be exercised at the expiration date each month. Taken together, the strategy aims to reduce volatility while generating income compared to its reference index. The ETF takes a fund-of-fund approach, holding the KraneShares CSI Internet ETF (KWEB) as its primary asset. In doing so, it charges a 95 basis point fee.
The Environment for a China Covered Call ETF
Such a strategy can provide some benefits from China’s volatile economy. It also benefits from the internet stocks in the country that could ride the eventual unleashing of Chinese consumer spending. Should government fiscal support spark new spending from savings-focused Chinese consumers, KLIP could benefit on top of its yield offerings.
Based on flows, at least some investors are buying into that investment case. KLIP has added $61 million over the last three months, lifting its AUM above $115 million. For investors looking for China exposure that can actually benefit from its instability, KLIP may be one to watch.
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