VanEck has launched a new ETF in Europe targeting high-quality Chinese companies from so-called ‘new economy’ sectors while taking into account ESG criteria.
Martijn Rozemuller, Head of Europe at VanEck.
The VanEck Vectors New China ESG UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: CNEW LN) and pound sterling (CEGB LN) and on Deutsche Börse Xetra in euros (CNIE GY).
The fund offers investors a vehicle to profit from the transformation of the Chinese economy which is rapidly evolving due to an expanding middle class, rising GDP per capita, changing consumption patterns, and broad technological innovation.
The portfolio is designed to capture dynamic consumption-related themes including the dominance of e-commerce platforms (China’s online retail market is already bigger than the world’s next ten largest e-commerce markets combined) and the growth opportunity within the health care sector (one-fifth of China’s population is expected to be over 65 years old by 2035).
Martijn Rozemuller, CEO at VanEck Europe, said: “It’s a new kind of consumer that is behind China’s amazing growth. They spend their money on innovative technologies, healthcare services, pharmaceuticals, and consumer and luxury goods.
“China’s economy continues to develop and companies in the country are adapting to the new consumer realities. Chinese companies that are part of the new economy are likely to outpace the country’s overall growth.”
Methodology
The ETF tracks the MarketGrader New China ESG Index using direct physical replication.
The index selects its constituents from a universe of companies domiciled in China and listed on Chinese mainland exchanges, Hong Kong stock exchange, or in the US. Chinese A-shares are only eligible if they are trading through the Stock Connect program.
To target growth related to China’s new economy, the index screens for companies operating in the consumer discretionary, consumer staples, healthcare, and technology sectors. Stocks with market capitalizations below $500 million and average daily trading volumes under $2m are excluded.
Each remaining firm is then assigned an ESG rating based on OWL Analytics’ consensus ESG Score which represents thirty core metrics including 12 key performance indicators. Companies with OWL ESG scores ranking below the median amongst Asian Pacific emerging market firms from the same sector are removed.
Security selection is then determined by MarketGrader’s proprietary equity rating system which assigns all stocks a score between 0-100 based on a combination of 24 fundamental indicators. The factors span growth, value, profitability and cash flow metrics, representing a ‘growth at a reasonable price’ (GARP) strategy.
The methodology selects the 100 stocks with the highest MarketGrader scores while limiting the number of constituents chosen from each of the four sectors to 30. Constituents are equally weighted, and the index is reconstituted and rebalanced on a semi-annual basis with buffer rules helping to limit unnecessary turnover.
As of the end of August, the index’s largest sector exposures were technology (42.0%), consumer staples (32.9%), consumer discretionary (13.9%), and health care (10.7%).
The ETF comes with an expense ratio of 0.60%. Income is accumulated within the portfolio.