BlackRock has launched a new ETF in Europe providing exposure to Chinese technology-enabled companies classified to certain Global Industry Classification Standard (GICS) sub-industries.
Several European ETF providers have introduced products this year targeting Chinese technology-enabled companies.
The iShares MSCI China Tech UCITS ETF (CTEC NA) has been listed on Euronext Amsterdam and comes with an expense ratio of 0.45%. Income is accumulated within the portfolio.
The fund is the latest in a flurry of ETFs launched in Europe that target China’s technology and high-innovation industries or the so-called ‘New Economy’, a term used to describe the country’s transition away from manufacturing and heavy industries towards a consumption and services-led growth model.
New Economy companies typically operate within advanced or modernized industries belonging to the consumer discretionary, communication services, healthcare, and information technology sectors.
Firms operating within such industries are anticipated to grow at a faster rate than those within the so-called ‘Old Economy’ owing to several tailwinds including government subsidization, an expanding middle class, changing consumption patterns, and broad technological innovation.
In 2021 alone, Europe-listed ETFs targeting this theme have been brought to market by VanEck, Invesco, and UBS. These include the VanEck Vectors New China ESG UCITS ETF (CNEW LN), which launched in September and comes with an expense ratio of 0.60%; the Invesco MSCI China Technology All Shares Stock Connect UCITS ETF (MCHT LN), which debuted in June and has an expense ratio of 0.49%; and the UBS Solactive China Technology UCITS ETF (UIC2 GY), which rolled out in March and costs 0.47%.
One of the largest and more seasoned ETFs in this space, however, is the $809m KraneShares CSI China Internet UCITS ETF (KWEB LN) which launched in November 2018 and comes with an expense ratio of 0.75%.
Methodology
The iShares MSCI China Tech UCITS ETF is linked to the MSCI China Technology Sub-Industries ESG Screened Select Capped Index which is based on the parent MSCI China Index universe covering large- and mid-cap Chinese A shares, H shares, B shares, Red chips, P chips, and foreign listings such as ADRs.
The methodology first removes violators of UN Global Compact principles as well as companies that are associated with weapons, tobacco, thermal coal, and oil sands.
MSCI then screens for companies that are classified within the internet & direct marketing retail, interactive media & services, education services and interactive home entertainment sub-industry groups.
Constituents are weighted by float-adjusted market capitalization subject to a cap of 8% on each of the five largest stocks and a cap of 5% on any other stock.
The index is rebalanced on a quarterly basis.
As of the end of November, the index contained 186 stocks with the majority of the total index weight dedicated to companies classified to the consumer discretionary (34.3%), information technology (31.3%), and communication services (26.2%) sectors.
Notable positions included JD.com (9.9%), Meituan (8.6%), Tencent (8.0%), NetEase (6.0%), Xiaomi (5.9%), Alibaba (5.7%), and Baidu (4.8%).