KraneShares revamps China onshore equity UCITS ETF

Nov 12th, 2021 | By | Category: Equities

KraneShares has restructured its European domiciled, London-listed China onshore equity UCITS ETF with the adoption of a new index.

KraneShares revamps China onshore equity UCITS ETF

KraneShares has rejigged its LSE-listed China onshore equity UCITS ETF with the adoption of a new index.

The fund, which previously tracked the MSCI China A Index, is now the KraneShares MSCI China A 50 Connect UCITS ETF (KA50 LN), referenced to the MSCI China A 50 Connect Index.

The incoming index, developed by MSCI, consists of 50 large-cap A-shares – renminbi-denominated stocks traded on the Shanghai and Shenzhen stock exchanges – accessible through the Northbound Stock Connect channel.

The Stock Connect programme was established to facilitate securities trading and clearing between the mainland and Hong Kong. The Northbound trading channel enables international investors to trade eligible securities in mainland China through the Stock Exchange of Hong Kong.

The construction process behind the new index starts by taking the two largest securities, based on free float-adjusted market capitalization, from each of the GICS sectors represented in the MSCI China A Index. It then selects the next largest securities based on free float-adjusted market capitalization, irrespective of sector, until the number of securities reaches 50.

The selected constituents are then assigned provisional weights in proportion to their free float-adjusted market capitalization. These constituent weights are then adjusted so that the sector weights of the index mirror those of the MSCI China A Index.

The resultant index offers similar exposure and high correlation to the original index but provides superior liquidity and investability owing to its focus on larger, and invariably more liquid, stocks. This in turn should lead to reduced tracking error for the fund.

The fund also stands to benefit from the recent introduction, on HKEX, of futures contracts based on the MSCI China A 50 Connect Index. The existence of a liquid futures market on the same index as the fund’s underlying enables market makers to directly hedge exposure, thus allowing them to quote tighter bid-ask spreads for investors.

Commenting on the reorganization, Dr. Xiaolin Chen, Head of International at KraneShares, said: “We are proud to have the first UCITS ETF to track the MSCI China A 50 Connect Index. KA50 will focus on the largest most liquid stocks, which receive the majority of foreign interest and inflows. We believe these stocks will continue to be the primary beneficiaries of increased international investment in the years to come.”

Jonathan Krane, CEO of KraneShares, added: “We have a long history of partnering with MSCI as the index provider for our Mainland China equity ETFs…We are excited to continue the relationship in our UCITS range with the KraneShares MSCI China A 50 Connect UCITS ETF (KA50), which provides industry-leading international access to the China onshore equity market for global investors.”

In its original incarnation, as the KraneShares MSCI China A-Share UCITS ETF (KBA LN), assets under management peaked at more than $137 million. Today, fund assets stand at around $7m.

The fund’s total expense ratio remains unchanged, at 0.40%, as does its London Stock Exchange listing.

Tags: , , , , , , ,

Leave a Comment