WisdomTree Adding China A-Shares To 2 ETFs

August 09, 2017

WisdomTree recently announced it would be adding China equities trading on the A-shares markets to the indexes underlying two of its ETFs, with the change effective on Aug. 11.

The move follows the announcement by MSCI in June that it will begin to add China A-shares stocks to its widely followed MSCI Emerging Markets Index. Both of the WisdomTree funds track in-house indexes.

“The addition of China A-shares to these indexes will provide investors with a more complete, diversified exposure to China,” said Jeremy Schwartz, director of research at WisdomTree.

Each fund see the addition of the 50 largest A-shares, in terms of market capitalization, that meet the respective index requirements. XSOE has nearly 440 components, while CXSE has just 68. Notably, the press release says that the A-share exposure will be capped at a 5% weight for XSOE and at 25% for CXSE.

About XSOE, CXSE

The WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) and the WisdomTree China ex-State-Owned Enterprises Fund (CXSE) both exclude state-owned enterprises from their portfolios.

“Rather than overexposing investors to energy and state-run banking sectors, which are dominated by state-owned enterprises, CXSE is significantly allocated toward consumer discretionary and technology sectors,” said Schwartz.

“The strong performance of CXSE and XSOE, which have a broader strategy, has been driven by this exposure to growth-oriented and consumer-centric companies,” he added. “We believe the addition of China A-shares will further enhance these strategies by allowing for access to new securities as well as a more complete exposure to the market.”

China’s Markets

XSOE will be less affected by the change than CXSE, which is focused exclusively on China’s markets. China and Hong Kong make up roughly a quarter of the market capitalization of XSOE, while those nations represent more than 80% of CXSE. The U.S. has a weighting of nearly 19% in the China-focused fund due to American depositary receipts, but less than a 4% weighting in XSOE.

WisdomTree notes that CSXE has returned roughly 50% year-to-date, while XSOE is up 32% during the same period.

Both funds are fairly small, with roughly $20 million in assets under management each, and expense ratios of 0.32%.

Contact Heather Bell at [email protected]

 

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