An ETF that Bets on a Recovery in China

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

China has been an exciting investment theme for many years now.

Chinese tech companies have been an even hotter investment theme, as its emerging market continues to mature and the comforts of the developed world become more accessible to the country’s growing middle class. China’s economy, as most traders know, has been expanding at an impressive rate for decades, and consumption and government spending have risen aggressively.

One way to invest in this theme is through KraneShares CSI China Internet ETF (KWEB). This exchange-traded fund (ETF) invests in China-based companies that are primarily engaged in the internet business or related technology.

Many prominent Chinese internet companies essentially mimic established domestic giants, such as Alphabet Inc. (NASDAQ: GOOGL), formerly Google, and Amazon.com Inc. (NASDAQ: AMZN). But this does not mean the market is smaller.

In fact, Chinese online retail sales were more than double the same figure for the United States in 2020. It is worth noting that the developing nature of the economy means that a lesser percentage of the population has yet to use the internet at all. As a result, there is inherent room for growth.

KWEB currently holds net assets of over $6 billion. Its expense ratio is somewhat high at 0.70%, possibly due, in part, to the fund’s exposure to foreign securities trading on the Hong Kong market.

KWEB’s performance for the past year is actually quite poor, registering at -56%. Part of this loss may be due to recent regulations. This may mean that the fund can be purchased at an attractive entry point at this time, as even recovering those losses would double an investor’s money. But whether such a rebound will happen anytime soon is far from certain.

Chart courtesy of stockcharts.com

Top holdings of this fund include Tencent Holdings Ltd., 10.66%; Meituan, 8.00%; Alibaba Group (BABA), 6.68%; Baidu Inc. (BIDU), 6.19%; and Kanzhun Ltd. (BZ), 4.84%. There are 55 positions in total, though this includes duplicates of a few companies for which the fund holds both American Depositary Receipts (ADRs) and Chinese shares.

For investors who believe the Chinese internet industry is likely to turn around this year, KraneShares CSI China Internet ETF (KWEB) could offer a potential way to take advantage of such a lucrative event.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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