KraneShares’ European business has rolled out an ETF providing exposure to publicly listed companies operating in the Chinese health care sector.
KraneShares’ latest European ETF provides exposure to Chinese health care stocks.
The KraneShares MSCI All China Health Care Index UCITS ETF (KURE LN) has listed on the London Stock Exchange, becoming the New York-headquartered asset manager’s fifth European domiciled UCITS ETF.
The fund tracks the MSCI China All Shares Health Care 10/40 Index, an index reflecting the performance of large- and mid-cap Chinese companies that are classified in the Health Care sector according to the Global Industry Classification Standard (GICS).
The index includes companies listed in Hong Kong, Shanghai, Shenzhen, and New York, comprising China A‐shares, B‐shares, H‐shares, Red‐chips, P‐ chips, and ADRs.
There are presently 93 constituents in the index coming from a range of industries including patent and generic pharmaceuticals, hospital administration, biotechnology, medical equipment production, health care IT, and traditional Chinese medicine. The average market capitalization of constituents is $4 billion.
The index is weighted by free-float-adjusted market capitalization subject to a 10/40 concentration constraint that caps the weight of each entity in the index at 10% and the cumulative weight of all entities with a weight in excess of 5% at 40%. Significant positions currently include Wuxi Biologics (9.69%), Jiangsu Hengrui Medicine (7.41%), Shenzhen Mindray Bio-Medical (5.41%), AIER Eye Hospital Group (3.87%), and WuXi AppTec (3.60%).
Growth opportunity
China is one of the fastest-growing major health care markets globally, with a five-year compound annual growth rate of 13%, compared to just 3% in the United States and 2% in Japan, according to data from KraneShares. In 2015 China surpassed Japan to become the second-largest health care market globally. Since then, total health care expenditure in China has nearly doubled from $594bn to over $1 trillion in 2019.
KraneShares posits that there is still an opportunity for considerable growth in China’s health care market as per capita health care spending still lags other top health care markets at just $501, compared to an average of over $5,700 for the world’s top eight health care markets.
“We believe China’s health care sector presents a compelling investment growth opportunity,” said Jonathan Krane, CEO of KraneShares. “We see several long term catalysts for the sector, including increasing demand for health care from China’s aging population, a rising middle class, increasing health care spending per capita, innovation, and technological advancement.”
The fund has total annual operating expenses of 0.69% and has been seeded with $2.5 million. It appears to be the only China healthcare ETF in Europe. A DWS ETF, the Xtrackers CSI 300 Health Care UCITS ETF, used to cover the large-cap space but has since been delisted and liquidated.
KraneShares offers the same strategy in the US – the KraneShares MSCI All China Health Care Index ETF (KURE US), on NYSE Arca – where it has gathered $180m in assets. Its rival in the US is the Global X MSCI China Health Care ETF (CHIH US) with $14m in assets.