ETF Of The Week: China ETF ‘ASHR’ Bruised

July 12, 2018


Source: StockCharts.com. Data as of July 12, 2018.

Complex Markets, Complex Structure

ASHR Chinese companies through its subadvisor, Harvest Global Investments, which maintains a special license to hold A-shares up to a certain quota.  Harvest can also access A-shares through a special program called "Stock Connect" which gives non-mainland investors access subject to a daily cap.
 
Should everyone want A-shares at the same time, ASHR could find itself unable to get new shares through Stock Connect, and hitting the limits of Horizon's ownership quota.  At that point, ASHR would need to use derivatives to maintain its exposure.

If neither is possible, ASHR may have to limit or halt creations. Halted creations are rare, but they can happen—and to be sure, any ETF investing directly in A-shares faces these same quotas and concerns.

Costs Matter
ASHR's expense ratio is 0.65%. That's a single basis point more expensive than KBA’s 0.64%. 

Though KBA has fewer assets and roughly half the average daily trading volume, it has dominated the bulk of yearly flows, pulling in $198 million compared to ASHR's $64 million.

Despite the potential issue with creations, ASHR possesses strong liquidity, with $34 million in average daily volume and an average spread of just 0.03%.

Under The Hood
The bulk of ASHR's portfolio is in financials (36%), with significant holdings in consumer cyclicals (13%) and industrials (12%) as well. Two of its top three companies are banks, while a third, Kweichow Moutai, is a food, beverage and packaging conglomerate.

Year-to-date, ASHR is down 15%, though on a one-month basis, the fund has fallen 11%. ASHR dropped 3% on the news of the latest round of tariffs, but has since recovered most of those losses.

 

Contact Lara Crigger at [email protected]

 

 

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