With the tailwind of a vaccine rollout, China’s economic recovery is helping to fuel its equities. This can be seen in small caps via the iShares MSCI China Small-Cap ETF (ECNS), which is already up 17% year-to-date.

ECNS seeks to track the investment results of the MSCI China Small Cap Index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and in investments that have economic characteristics that are substantially identical to the component securities of the underlying index.

The index is a free float-adjusted market capitalization-weighted index designed to measure the performance of the small capitalization segment of Chinese equity securities markets, as represented by the H-shares and B-shares markets. Overall, investors get:

  1. Exposure to small public companies in China
  2. Targeted access to small cap Chinese stocks
  3. Use to express a view on a single country market segment; pair with the MCHI ETF for comprehensive China coverage

The fund is up over 40% within the past year.

ECNS Chart

Small caps tend to catch strong upside in good times and heavy downside in bad. That said, ECNS has been outperforming its large cap cousin, the iShares China Large-Cap ETF (FXI), by about 16% this year.

ECNS Chart

Leveraging Tech Strength in Small Caps

Investors won’t see names like Alibaba or Tencent Holdings in ECNS. Instead, they get exposure to growth-oriented companies with a tilt towards the tech sector. Check out the fund’s top five holdings below.

This China Small Cap ETF is Living Large So Far in 2021 1

Look for more technology strength to continue as China looks inward for technological self-reliance. As a South China Morning Post article writes, “a high-ranking official within the inner circle of the ruling Chinese Communist Party has said China must embrace a ‘whole country’ approach and mobilise the nation’s private businesses to reduce reliance on foreign technologies amid ongoing US sanctions that restrict China’s access to advanced equipment and devices.”

“Jiang Jinquan, the newly promoted head of the Central Policy Research Office, which studies and drafts national policies for China’s top leadership, wrote in an article in the official media Study Times on Monday that it was Beijing’s ‘inevitable choice’ to seek a greater level of technology independence when the US was imposing technology restrictions on China,” the article added.

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