KraneShares’ latest offering in the ETF space is an amalgamation of its existing China funds covering a range of the country’s research-and-development-heavy industries.
The KraneShares China Innovation ETF (KGRO) launched on the NYSE Arca Thursday with an expense ratio of 0.99%. That fee accounts for the 73 basis points of weighted expenses of the underlying ETFs, along with 26 basis points in management fees and other costs.
The fund is actively managed, but fully transparent.
KGRO will put 85% of its assets in five of its existing China ETFs on a weighted basis and move those weights around based on market conditions. The other 15% to invest in privately held companies are expected to make an initial public offering.
KraneShares Chief Investment Officer Brendan Ahern said the idea for the ETF originated as a way to bundle the firm’s China strategies for investors or financial advisors who aren’t actively managing portfolios day to day.
He also said a combination of themes in the country coincided with the plan to invest in companies as they debut in Hong Kong, or in domestic exchanges like the Shenzhen Stock Exchange, the Shanghai Stock Exchange or the tech-focused STAR Market.
“Why not make best efforts to start participating in these IPOs if they can provide significant upside? We want to be able to take advantage of that on behalf of our shareholders,” he said.
The initial weights in each ETF as of launch are as follows:
|KWEB||KraneShares CSI China Internet ETF||30%||-41.62%|
|KURE||KraneShares MSCI All China Health Care Index ETF||25%||-7.09%|
|KGRN||KraneShares MSCI China Clean Technology ETF||20%||-3.53%|
|KFVG||KraneShares CICC China 5G & Semiconductor ETF||15%||-12.20%|
|KSTR*||KraneShares SSE STAR Market 50 Index ETF||10%||-6.00%|
*KSTR has not traded for a full 12 months. Its net asset value is used in lieu.
All of the ETFs underlying KGRO have posted negative year-to-date returns. The biggest cause of the turbulence is from Beijing itself, which opened a sweeping series of probes and crackdowns on sectors ranging from big tech to after-school tutoring firms as part of a five-year plan to reorganize the country further under government rule.
In KWEB’s case, a security review of ride-hailing app Didi after it debuted on the New York Stock Exchange was the precursor to deep sell-offs in mid-July in Chinese internet giants like Alibaba and Tencent.