KraneShares has expanded its suite of China-focused strategies with the launch of a new ETF targeting high-quality companies catering to the Chinese consumer.
Jonathan Krane, CEO of KraneShares.
The KraneShares CICC China Consumer Leaders ETF (KBUY US) has listed on NYSE Arca and comes with an expense ratio of 0.69%. It has been seeded with $2.5 million in assets.
The fund is referenced to the CICC China Consumer Leaders Index which was developed by the research team at China International Capital Corporation (CICC), one of China’s foremost investment banks.
The index consists of all types of Chinese share classes including A-Shares, B-Shares, H-Shares, P-Chips, and Red Chips, as long as the stock has an average daily trading value above RMB 10m (approx. $1.5m).
To be eligible for inclusion, firms must be classified according to the Global Industry Classification Standard (GICS) as operating in one of the following consumer-related industries: consumer electronics, home decorations, household appliances, leisure products, clothing and footwear, textiles, hotels and luxury cruises, restaurants, computers and electronics, liquor and soft drinks, food retail, personal items, and leisure facilities.
Companies are then ranked based on a combination of market capitalization and quality factor metrics such as long-term operating income, cash flow, return on equity, and gross profit. The top 30 stocks are selected to form the final index.
Constituents are weighted by free-float market capitalization subject to an individual cap of 15% and a cumulative cap of 50% on stocks with weights greater than 5%. Rebalancing occurs quarterly.
As of 14 December, the largest index constituents were Gree Electric (11.0%), Kweichow Moutai (10.1%), Foshan Haitian (6.7%), Wuliangye Yibin (6.0%), and Jiangsu Yanghe Brewery (5.6%).
According to KraneShares, the ETF stands to benefit from several tailwinds including a large and growing middle class in China, rising disposable incomes, and advancements in e-commerce platform technologies helping companies reach lower-tier cities.
By focusing on high-quality companies, the fund captures some of China’s top brands that have established economic moats with competitive advantages such as built-in efficiencies, brand recognition, and unique patents.
Jonathan Krane, CEO of KraneShares, said: “China has a population of 1.4 billion consumers who have seen their per-capita wealth climb steadily over the past decades. We believe there is a tremendous investment opportunity in owning the companies that are producing products that these consumers are purchasing every day.”