Every once in a while, an ETF seems to hit all the right notes at the right time. One such fund these days is the KraneShares CSI China Internet ETF (KWEB).
China-focused equity ETFs have generally had a challenging time this year, with the country sitting in the middle of a trade spat with the U.S., and as economic momentum in the country wanes. Chinese stocks have taken a beating, and some market pundits are now saying they could be on the edge of a bear market that, once here, could linger for months.
Mainland-listed stocks in particular, known as A-shares, are at multimonth lows, and still struggling to find a bottom. Some of the largest China ETFs are in the red—especially those invested in mainland stocks—or are barely in the black this year:
- iShares China Large-Cap ETF (FXI), $4.2 billion in assets
- iShares MSCI China ETF (MCHI), $3.7 billion
- SPDR S&P China ETF (GXC), $1.2 billion
- Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR), $664 million
Contrast that to KWEB’s relatively bumpy-but-solid run this year, tallying gains of more than 7%, outperforming not only other major China equity ETFs, but also the MSCI China IMI Information Tech Index—the benchmark we use for reference in this particular segment—by more than 6 percentage points, according to FactSet data.
Behind The Performance
KWEB is an index-tracking China equity ETF, but one focused exclusive on internet stocks. Internet as a segment has been hot globally this year, and KWEB’s focus on some of the fastest-growing names in this industry is paying off. There’s also the train of thought that Chinese internet stocks are more shielded from U.S. tariffs than other sectors of the economy.
Notable here is that driving KWEB’s performance isn’t necessarily its big bet on the mightiest China internet names—companies like Alibaba, Baidu and Tencent. These companies are KWEB’s top holdings, and they have delivered a stellar run, but these three leading names in China’s tech segment have not been among KWEB’s top five best-performing stocks for the past three years.