WisdomTree, KraneShares Launch ETFs

Today WisdomTree is rolling out a fund designed to complement its existing $314 million WisdomTree CBOE S&P 500 PutWrite Strategy Fund (PUTW). The brand-new WisdomTree CBOE Russell 2000 PutWrite Strategy Fund (RPUT) covers the small-cap space as represented by the Russell 2000 Index.

RPUT comes with an expense ratio of 0.43% and lists on CBOE Global Markets, the parent company of ETF.com.

“I actually feel like the market environment we’re in today is really one of the best environments for writing options strategies like PUTW and RPUT, which is when people believe the market is getting in the later innings,” said WisdomTree Director of Research Jeremy Schwartz. “When upside is limited, you want to find a strategy to mitigate downside and protect against volatility.”

Fund Specifics

With the addition of RPUT, WisdomTree now offers put-write strategies on two indexes often paired together by institutional investors, despite the fact that they have very different methodologies. The S&P 500 Index comprises mostly large-cap stocks selected by a committee, while the Russell 2000 is comprises simply the smallest stocks by market capitalization in the broad Russell 3000 Index.

“Looking at the beta category, large-cap beta and small-cap beta are two of the biggest ETF categories generally, and now you have a put-write for each of the two major indexes, the S&P 500 and the Russell 2000,” Schwartz said.

The fund’s strategy involves writing fully collateralized at-the-money put options on the Russell 2000 and rolling its exposure every month. This means investors get the premium income from selling the options while seeing less volatility than they would by simply replicating the equity index. The fund also invests the cash from the premiums in Treasury vehicles, generating added returns.

RPUT is notable because it is only the second put-write strategy ETF to currently list on the market (PUTW was the only one still trading until now) and the first to focus on small-caps. Schwartz notes that options strategies are a largely uncovered category for ETFs, with less than 10 funds that focusing on those approaches.

“If you think about what are the investment strategies that have resonated with investors over time, it’s taking a strategy that’s complex to implement and making it simple for them,” he said.

“Options strategies are one of the most common investment strategies advisors use. But they have to roll the options themselves, etc. This is a simple way to execute a very common investment strategy,” Schwartz added, drawing parallels with currency hedging, which was common among institutional investors, but more difficult for individuals to execute before the strategy became available in an ETF wrapper.

KraneShares Debuts China Health Care ETF

KraneShares today is rolling out a China health care sector ETF that tracks an index covering a multitude of China shares classes. The KraneShares MSCI All China Health Care Index ETF (KURE) tracks an index that uses the traditional health care sector classification of the Global Industry Classification Standard used by MSCI.

KURE lists on the NYSE Arca and comes with an expense ratio of 0.79%.

“People talk about how China’s demographics could be potentially detrimental to the economy as China ages. We view it differently—we see it as a tremendous opportunity,” said Brendan Ahern, chief investment officer of KraneShares, in reference to the investment argument for KURE.  

“China, like much of the Western World, is going to age, but the difference is that, while the Western World is very advanced in terms of the amount of medical spending, the amount of medical services and facilities, China is going to have to advance in a very rapid fashion to address elements of its populations that will be aging in the years to come,” he added.

Methodology

Its underlying index tracks Chinese companies that operate in the healthcare sector subject to minimum size and liquidity requirements. The index also encompasses essentially all of the different share classes associated with China’s offshore and mainland equity markets, including A-shares, B-shares, H-shares, N-shares, P-chips and red chips.

“Health care is rising. Households are now spending more on health care than they ever had,” said Ahern. “As you have this growing urban middle class, they’re willing to spend a lot more on making sure that they’re healthy—on medicine and eating right and exercising more.”

“The annual health care consumption per capita has been growing quite rapidly, but we still feel like it’s well below where equivalent Western economies are. In order to fill that means a tremendous amount of money is going to be spent,” he noted.

The prospectus notes that the index included 58 securities as of early December.

Contact Heather Bell at [email protected]