KraneShares has introduced a new thematic China equity ETF in Europe targeting companies offering products and services that benefit the environment.

China’s solar power sector has boomed in recent years.

The KraneShares MSCI China Clean Technology Index UCITS ETF has been listed on London Stock Exchange in US dollars (KGRN LN) as well as on Deutsche Börse Xetra (KGNE GY) and Borsa Italiana (KGRN IM) in euros.

China’s efforts in championing renewable technology have been significant, marking the nation as a frontrunner in this domain. The country’s commitment to solving its pollution challenges is characterized by goals such as achieving peak emissions by 2030 and aiming for carbon neutrality by 2060.

China is expected to remain the global leader in renewable energy over the next five years, accounting for 43% of renewable capacity growth worldwide. The country’s solar power sector, in particular, has boomed in recent years with forecasts suggesting that solar power capacity will be augmented by an additional 30% this year, equating to an impressive 95 to 120 gigawatts (GW) of solar power.

China’s electric vehicles market is also the largest in the world with more than four million EVs sold in 2022, five times the quantity sold in the US. The industry benefits from China’s dominance in the global market for rare earth metals which provides an inherent supply chain advantage for domestic production.

Commenting on the new ETF’s investment theme, Jonathan Krane, CEO of KraneShares, said: “We believe China is currently undergoing an environmental renaissance, pledging hundreds of billions of dollars to environmental protection projects and policies. Chinese companies focused on contributing to a more environmentally sustainable economy may potentially benefit from this focused initiative.”

Xiaolin Chen, Head of International at KraneShares, added: “KGRN presents a compelling investment opportunity for those seeking to gain exposure to industries that are not only experiencing rapid growth, but are also actively addressing environmental challenges. By investing in China’s clean technology companies at the forefront of sustainable innovation, KGRN provides the potential to generate strong returns while aligning with investors’ values.”

Methodology

The ETF tracks the MSCI China IMI Environment 10/40 Index which screens for companies deriving at least 50% of their revenue from environmentally beneficial services and products across four sub-themes: Alternative Energy, Sustainable Water, Pollution Prevention, and Energy Efficiency.

Constituents are selected from the extensive MSCI China IMI Index universe which comprises large, mid and small-cap stocks across multiple types of Chinese shares including A, H, B, Red chip and P chip share classes.

Constituents are weighted by market capitalization subject to a single security cap of 10% and a cumulative cap of 40% on all stocks with individual weights above 5%.

As of the end of September, the index’s sector allocation was dominated by stocks from the Consumer Discretionary (38.8%) and Industrials (27.9%) sectors with notable exposure also to Information Technology (18.7%) and Utilities (12.5%).

The index contained 56 constituents. Notable positions included prominent names in the electric vehicles sector, such as BYD (9.2%), Li Auto (8.6%), NIO (7.7%), and XPeng (5.3%), as well as lithium-ion battery manufacturer, Contemporary Amperex Technology (8.2%).

The ETF comes with an expense ratio of 0.78% and is classified as an Article 8 product under the EU’s Sustainable Finance Disclosure Regulation (SFDR).