KraneShares, known for its suite of China-centric and innovative ETFs, announced in a press release on Wednesday an index change and subsequent name change for their flagship A-shares exposure fund. The KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA) now tracks the MSCI China A 50 Connect Index and is the first U.S. listed ETF to offer exposure to the index.
KBA was the first ETF in the U.S. to offer exposure to MSCI-linked A-shares, and the index change is one that KraneShares believes will align the fund positively with the most recent developments within the A-share market. The move follows the launch in October 2021 of futures contracts based on the MSCI China A 50 Connect Index by the Hong Kong Exchange.
These futures contracts are created for offshore investors and are the first of their kind to offer risk management options for Stock Connect-eligible A-shares. The addition of the futures and their inclusion in the index is anticipated to reduce tracking error as well as bid-ask spreads, since market makers will be able to hedge their exposures with the futures contracts.
“Through tracking the MSCI China A 50 Connect Index, KBA will focus on the largest most liquid stocks, which receive the majority of foreign interest and inflows3. Additionally, according to the Financial Times, three Mainland ETFs that track the MSCI China A 50 Connect Index saw over $4.5 billion inflows in November alone,” said Brendan Ahern, chief investment officer of KraneShares, in the press release.
About the New Index
The index is designed to provide diversified exposure to the Chinese economy, and through its balanced sector weighting methodology, could offer greater liquidity. The index is constructed by selecting the two largest weighted securities from each of the 11 Global Industry Classification Standard (GICS) sectors within the large-cap portion of the MSCI China A Index (the parent index).
Remaining securities are selected from the parent index by largest weight until the total number reaches 50. All of the securities are then weighted according to the free-float market cap weight of the parent index as well as the GICS sector weight allocation within the parent index.
“We are pleased that KraneShares will utilize the MSCI China A 50 Connect Index, which is designed to provide a diversified measure across the Chinese economy,” explained Christine Berg, managing director and head of Americas index client coverage at MSCI, in the press release. “It aims to enable investors seeking to track China’s sector leaders as it represents the performance of the 50 largest securities across all Global Industry Classification Standard (GICS®) sectors.”
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