Invesco has launched a new ETF in Europe providing exposure to Chinese companies expected to derive significant revenue from technological innovation across a range of new economy sectors.
Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco.
The Invesco MSCI China Technology All Shares Stock Connect UCITS ETF has listed on London Stock Exchange in US dollars (MCHT LN) and pound sterling (MCTS LN) and comes with an expense ratio of 0.49%.
Other European listings, including on Xetra, are understood to follow.
Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco, said: “Our new ETF provides investors an effective way to get exposure to a broader array of innovative businesses than they would find in the traditional technology sector.
“In fact, companies in the information technology sector account for less than 20%. The largest sector exposures are currently in consumer discretionary and communication services; however, this isn’t a sector ETF. The focus is where a company is making its money, what technologies are underpinning its revenue. In that way, sector classification is immaterial.”
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, added: “China has long been known for its capacity to mass-produce and export goods, but modern China is now home to many of the world’s biggest innovators involved in cutting-edge technologies. Beijing aims to transform the country into a global leader in innovation and its latest Five-Year Plan emphasized a focus on achieving major breakthroughs in core technologies and annual increases in R&D spending.”
Methodology
The fund is linked to the MSCI China Technology All Shares Stock Connect Select Index which selects its constituents from the parent MSCI China All Shares Stock Connect Select 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.
The methodology 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.
After identifying and assigning companies to these categories, MSCI calculates a thematic relevance score for each 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 10%.
The index is reconstituted and rebalanced semi-annually with buffer rules helping to limit unnecessary turnover.
The fund is the second China-focused ETF launched by Invesco this year, following on from the Invesco MSCI China All Shares Stock Connect UCITS ETF (MCHN LN) which debuted in March. This fund provides comprehensive Chinese equity exposure by tracking the above-mentioned MSCI China All Shares Stock Connect Select Index. It comes with an expense ratio of 0.35%.