Alibaba Spikes, But ETFs Are Lagging

November 06, 2014

While Alibaba’s shares are on a tear, the waves China’s Internet giant are making in ETFs is another story.

Alibaba stock (BABA) has been on a tear, rising roughly 18 percent from its closing price on its first trading day in the U.S. less than seven weeks ago. If you consider Alibaba's IPO price of $68 a share, the company's stock is actually up more than 60 percent in that period. However you slice it, Alibaba's share price trajectory is nothing short of impressive. But the same can't quite be said about the performance of the ETFs that invest in Alibaba.

The company's recent momentum hinges on better-than-expected earnings, as well as growing investor enthusiasm over prospects for the e-commerce giant going forward.

Next week, for example, China will celebrate Singles’ Day on Nov. 11—an annual holiday that celebrates people who are single. It’s also the biggest online shopping day in the world. The Alibaba Group dominates upward of 80 percent of online sales in China through portals that do consumer-to-consumer, business-to-consumer and business-to-business sales.

But ETFs that already own Alibaba aren’t jumping nearly as much as Alibaba’s stock—a reminder for investors that an alpha-centric play doesn’t translate so much to beta-focused index ETFs. ETF.com’s CIO Dave Nadig argued that very point in a recent blog, saying to ETF investors: “Don’t Chase Alibaba.”

Beyond that fundamental problem, it’s crucial to remember that some of the ETFs that might one day own Alibaba don’t yet hold it. Also, some indexing methodologies are actually being tweaked to accommodate China-based but U.S.-listed companies like Alibaba. Translation: You can’t yet even get access to Alibaba in many China- or Internet-focused ETFs even if you wanted to.

That said, consider the two funds that do hold Alibaba shares: the Renaissance IPO ETF (IPO | B-32) and the First Trust US IPO ETF (FPX | A-47). Each has gained slightly more than 1 percent, respectively, in the past month, as the chart below shows. Again, that’s nothing like the price spike of Alibaba’s shares.

IPO, which tracks a market-cap-weighted index of recent U.S.-listed IPOs, allocates about 11.6 percent to Alibaba—its largest holding in a portfolio of 74 securities. FPX, meanwhile, holds Alibaba as its sixth-largest holding, with a 3.4 percent weighting in a portfolio that’s currently led by Facebook.

IPO_FPX_One_Month_Perf

Chart courtesy of StockCharts.com

 

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