China-focused ETF issuer KraneShares has made its debut in Europe with the launch of the KraneShares CSI China Internet UCITS ETF (KWEB LN) on the London Stock Exchange.
Jonathan Krane, CEO of KraneShares.
The fund provides exposure to US and Hong Kong-listed Chinese internet and internet-related companies – companies KraneShares characterises as local equivalents of the likes of Google, Facebook, Twitter, eBay, and Amazon.
“We are seeing significant client demand for a China-focused Internet UCITS ETF in the European market,” said Jonathan Krane CEO of the New York-based issuer. “We are excited to bring this successful ETF to the London Stock Exchange.”
The launch of the ETF comes shortly after an NYSE-listed version of the strategy – KraneShares’ flagship $1.66 billion KraneShares CSI China Internet ETF (KWEB US) – reached its five-year milestone.
Despite the poor performance of technology and internet-related stocks globally over the past six months, the ETF has chalked up an annualised return of 7.27% per annum over the past five years (as of 31 October 2018).
The underlying reference for the fund is the CSI Overseas China Internet Index, an index developed by China Securities Index Co.
Index constituents come from the following sectors: internet software & services, which includes companies developing and marketing internet software and/or providing internet services; home entertainment software, which includes manufacturers of home entertainment software and educational software used primarily in the home; internet retail, which includes companies providing retail services primarily on the internet; internet retail, which includes companies providing commercial services primarily through the internet; and mobile internet, which includes companies developing and marketing mobile internet software and/or providing mobile internet services.
Constituents must have a market capitalisation in excess of $500m and a daily average trading value of at least $500,000 to be eligible for inclusion. Constituents must also be incorporated and operate in mainland China and generate at least 50% of their revenue there.
Constituents are weighted by market cap subject to an individual security cap of 10% and a re-weighting adjustment process that ensures that the aggregate weight of those stocks with weights greater than 5% does not exceed 40%. The largest holdings in the fund are currently Tencent (10.4%), Alibaba (9.4%), Baidu (7.6%), Netease (7.0%), and Meituan Dianping (7.0%).
KraneShares notes that China has the largest global internet population with over 800 million internet users, comprising 21.1% of world Internet users. And with an internet penetration rate of just 57.7%, the issuer argues that there is still considerable room for growth in China’s Internet sector.
It also points to research from National Bureau of Statistics in China that indicate the country is the world leader in total e-commerce sales: in 2017, online sales in China reached $1.14 trillion, or nearly 50% of the total $2.3 trillion e-commerce sales worldwide.
The fund is domiciled in Ireland, trades in US dollars, and comes with a total expense ratio (TER) of 0.85%.
It has been brought to market in partnership with DMS, a Dublin-based fund solutions and UCITS management company.
Caoimhghin O’Donnell, Managing Director , DMS Governance, commented, “We are delighted to launch this ETF in Ireland…We continue to see strong interest in structures of this type and look forward to building on this relationship with KraneShares.”