DWS has launched a new ETF in Europe providing exposure to technology-enabled Chinese companies irrespective of traditional sector classifications.
The ETF aims to select innovative technology companies irrespective of traditional sector breakdowns.
The Xtrackers Harvest MSCI China Tech 100 UCITS ETF has been listed on London Stock Exchange in US dollars (XCTE LN) and on Deutsche Börse Xetra in euros (XCTE GY).
The fund is linked to the MSCI China All Shares Tech Select ESG Screened 100 Index which selects its constituents from the parent MSCI China All Shares Index.
The parent index covers all Chinese share classes – A-shares, B‐shares, H‐shares, Red‐chips, P‐chips, and foreign listings such as S-chips and N-shares – for a complete representation of China’s economy.
Violators of UN Global Compact principles, companies involved in weapons, tobacco, thermal coal, and oil sands, as well as firms with relatively low ESG ratings compared to their sector peers are removed from the parent universe.
The methodology then screens for companies that have high exposure to technology-related business activities in the following four categories: Internet, Mobility, Industrials, and Health.
Companies considered appropriate for these categories are identified by MSCI based on the frequency of relevant keywords found in their names, business summaries, and annual reports, which, in turn, are mapped to and corroborated with third-party industry classifications.
Companies assigned to the Internet category are defined as those with operations linked to blockchain, cloud computing, crowdsourcing, cybersecurity, e-commerce, fintech, the internet of things, mobile and digital payments, robotics and artificial intelligence, and social media.
Mobility companies are those that operate within the batteries, high-speed transportation, sharing economy, smart mobility, and automated vehicles sub-themes.
Industrials companies are those linked to 3D printing, alternate energy, innovative materials, smart infrastructure, and space exploration.
Health companies are defined as those focused on automated diagnostics, bioinformatics, clinical lab automation, healthcare info-tech, medical robotics, telemedicine, and medical devices.
MSCI then calculates a thematic relevance score for each identified firm based on the proportion of revenue derived from relevant industries as well as the frequency of related keywords in its business description. Companies with relevance scores below 25% are excluded.
The index then selects the 100 companies with the largest float-adjusted market capitalizations. Constituents are weighted using a combination of their relevance score and float-adjusted market cap (subject to foreign inclusion factors and foreign ownership limits) while capping any single stock at 4.5%.
The index is reconstituted and rebalanced semi-annually with buffer rules helping to limit unnecessary turnover.
As of 31 March, the index’s largest sector exposures were consumer discretionary (32.2%), information technology (19.1%), communication services (15.9%), industrials (12.3%), and materials (6.9%).
The ETF comes with an expense ratio of 0.55%.
The fund will compete with the Invesco MSCI China Technology All Shares Stock Connect UCITS ETF (MCHT LN) which follows a near-identical investment approach. The fund houses $30m in assets and comes with an expense ratio of 0.49%.