KBA, Best China A-Share ETF For Now

March 11, 2014

With the China A-share market now open, ETF investors have some choices to make.

U.S. ETF issuers finally have cracked the code to access the holy grail of investing in China—the physical A-shares market, and the question about which ETF to choose is now relevant.

Because now, working with renminbi qualified foreign institutional investors subadvisors in Hong Kong, U.S. issuers can operate ETFs that hold actual physical A-shares of companies listed on either the Shanghai or Shenzhen stock exchanges.

So far there are three such A-share funds. They are:

  • db X-trackers Harvest CSI 300 China A-Shares ETF (ASHR), the largest of them, has garnered about $160M in AUM since its November 2013 launch.
  • Market Vectors China AMC A-Share ETF (PEK | F-47) lags far behind in assets, with $32 million, even though it arrived first. (The caveat is that when it launched, it achieved its A-share exposure using derivatives, but only changed to actual A-shares after Deutsche Bank’s launch of ASHR.)
  • Finally, KraneShares has just launched the KraneShares Bosera MSCI China A Shares ETF (KBA).

While KraneShares’ KBA is a bit late to the party, I think KBA is a better product than either ASHR or PEK. I base that on an examination of the funds’ respective index construction methodologies.

Below is a snapshot of index constituent information.

 

MSCI China A Index CSI 300 Index
Number of Constituents 462 300
Total Capitalization (USD) $2.44T $2.20T
SOE (#) 303 211
SOE (% weight) 66.93% 69.12%

Figure 1: Index Constituent Comparison as of 2/28/2014

 

Unlike the CSI 300 Index, around which ASHR and PEK are built—which has a fixed number of index constituents—the MSCI China A Index underlying KraneShares’ KBA aims to cover 85 percent of the A-shares market by capitalization.

The significance of that is that the index reaches further down the market-capitalization spectrum, and the index will evolve with the market.

But exactly why is it better?

 

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