KraneShares Drafts China Dividend ETF

April 25, 2012



KraneShares Trust, a newcomer to the ETF space that’s also partnering with Exchange Traded Concepts on a number of China sector-focused ETFs, filed paperwork with U.S. regulators to market yet another Chinese equities ETF that would focus on dividend-paying stocks.

The KraneShares Dow Jones China Select Dividend ETF will track a Dow Jones index comprising dividend-yielding stocks from China-based companies listed primarily in Hong Kong and in the U.S., the filing said.

The dividend-yield-weighted index picks stocks showing the most prospective dividend and yield characteristics from the Dow Jones China Offshore Total Stock Market Index and the Dow Jones Hong Kong Total Stock Market Index, both of which are broad market-capitalization-weighted benchmarks.

The new fund will join an extensive roster of ETFs that serve up access to what is now the second-largest economy in the world. Even though growth in China has slowed recently, the country remains a major player in the emerging market segment and, increasingly, in the global economy.

The new fund’s registration statement is totally separate from the registration statement Exchange Traded Concepts filed on behalf of KraneShares last summer. The new filing depends on KraneShares obtaining exemptive relief from U.S. regulators that will give the firm the legal right to market specific ETFs.

That first registration statement included seven funds. Those are:

  • KraneShares China Consumer Luxury ETF will replicate the Dow Jones China Consumer Luxury Index. It will invest in companies that provide high-end consumer goods and services, from apparel to hotels. The index includes companies that generate “a sizable portion of their sales” in China.
  • KraneShares China Alternative Energy ETF will track the Dow Jones Alternative Energy Index and include companies related to alternative energy sources such as solar power and wind, as well as the manufacture and production of electric cars, their components and clean technologies.
  • KraneShares China Internet ETF will replicate the CSI Overseas China Internet Index. The fund will invest in China-based Internet companies involved with software and services, Internet retail and entertainment software.
  • KraneShares China Consumer Staples ETF will track the CSI Overseas China Consumer Staples Index, which comprises China-based companies in food and staples retail, beverage and tobacco products, or other various household and personal products.
  • KraneShares China Consumer Discretionary ETF will track consumer discretionary stocks with a focus on cars and parts, consumer durables and apparel, consumer services, media and retail.
  • KraneShares China Urbanization ETF will track the CSI Overseas China Urbanization Index and invest in companies involved with raw materials, property and real estate, industrial names, information technology/hardware and retail.
  • KraneShares China Five Year Plan ETF, which will also track a CSI benchmark focused on China-based companies that are deemed important in the Chinese government’s Five Year Plan.


The Case For China

Investors have largely embraced China-focused funds, particularly since the U.S.-centered credit crisis of 2008 sent the developed economies into deep credit-related recessions from which many have yet to fully recover. Conversely, emerging market countries bounced back from the shock relatively quickly.

Funds like iShares’ FTSE China 25 Index Fund (NYSEArca: FXI) and SPDR’s S&P China (NYSEArca: GXC) have benefited from that demand. FXI boasts more than $6.1 billion in assets, while GXC has nearly $900 million, even if their recent performance has been nothing to write home about.

FXI, which is focused on Hong Kong-listed stocks, has slid more than 15 percent in the past year, according to information on iShares’ website, and GXC has dropped nearly 18 percent in the same period.

The New Fund’s Aim

KraneShares’ fund will invest in China companies as represented by H-Shares—stocks from companies that are incorporated in China and listed on the Hong Kong Exchange.

The proposed ETF will also own so-called red chips, which are companies whose main business takes place in China, but that are incorporated in foreign jurisdictions controlled directly or indirectly by the Chinese government. Red chips are also listed on the Hong Kong Exchange, the filing said.


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