KraneShares has introduced a new ETF providing broad access to emerging market equities while optimizing exposure to China based on real-time valuation and technical signals.

Jonathan Shelon, Chief Operating Officer at KraneShares.

The KraneShares Dynamic Emerging Markets Strategy ETF (KEM US) has been listed on NYSE Arca with an expense ratio of 0.49%.

Jonathan Shelon, Chief Operating Officer at KraneShares, commented: “Through years of research, we discovered that investors can potentially achieve better returns by treating China as a distinct asset class within their emerging market portfolios.

“China has the world’s second-largest equity market and has shown differentiated historical performance as evidenced by its low correlation to global equity markets. Our goal with KEM is to provide investors with a powerful tool that leverages our best thinking on how to approach investing in emerging markets.”

Investment process

KEM gains its exposure by investing exclusively in the KraneShares MSCI Emerging Markets ex-China Index ETF (KEMX US) and the KraneShares MSCI All China Index ETF (KALL US) which are straightforward, passive funds delivering emerging markets ex-China and Chinese all-share exposures, respectively.

KEM aims to mirror the country weights of the flagship MSCI Emerging Markets Index with a baseline allocation of 69% exposure to KEMX and 31% to KALL.

The allocation between KEMX and KALL is then dynamically adjusted based on valuation and technical factors including traditional valuation multiples of the underlying holdings and moving averages of the underlying indices.

The model allows for a maximum 30% deviation from the baseline allocation, while the strategy may also allocate up to 10% of the ETF’s assets to cash if overall market conditions are deemed to be adverse.

The portfolio will typically be adjusted on a quarterly basis although the model is continuously monitored and rebalancing may occur more frequently if certain volatility or valuation triggers are met.