Unsung China ETF Struts Its Stuff

ETF Trends

Last year, investors witnessed a dichotomy of sorts with China exchange traded funds. The largest China ETF, the iShares China Large-Cap ETF (FXI) outperformed some major diversified emerging markets ETFs, but still lost 2.2% on the year.

Along the way, FXI and other traditional, large cap-focused China ETFs were handily outpaced by a less heralded group of funds. Those ETFs had a few key traits in common. Namely scant if any weight to Chinese bank and large allocations to Internet stocks. [A Good Year for Some China ETFs]

That scenario is replaying itself again in early 2014 with another oft-overlooked China ETF looking poised to emerge as one of the group’s top performers: The KraneShares CSI China Five Year Plan ETF (KFYP) . Forget being overshadowed by FXI. Most China ETFs are, but KFYP is also overshadowed by its stablemate, the KraneShares CSI China Internet Fund (KWEB) .

That is understandable as KWEB is a dedicated China Internet ETF and one that has rewarded investors with a 45% gain since Aug. 1, 2013. KWEB hit a new all-time high Friday on nearly triple the average daily volume. [Mobile Gaming Boosts China Internet ETFs]

KFYP is lightly traded, but that should not paint a negative picture of the ETF. Not when it gained almost 7% last month while FXI was up less than 5% over the same time. Since debuting in late July 2013, KFYP is up more than 30%. FXI is up less than 1% since KFYP came to market.

KFYP holds companies in targeted sectors of China’s 12th Five-Year Plan, including technology, domestic consumption, clean energy, industrial and healthcare. The Twelfth Five Year Plan (2011-2015) focuses on increasing domestic consumption, modernizing agriculture through mechanization and improvement of agricultural service businesses; encouraging stable urbanization; promoting energy saving and environmental protection; and encouraging domestic technological innovation. [Quirky New China ETF]

KFYP is not a pure play Internet ETF in the same vein as KWEB, but that does not mean the former skimps on Chinese web names. The opposite is true as technology and consumer discretionary names combine for over 54% of the ETF’s sector weight while Tencent Holdings and Baidu (BIDU) combine for a third of the fund’s weight.

KWEB and KFYP share five of the same top-10 holdings, though with different allocations. Also noteworthy is what KFYP does not have exposure to: Chinese banks. The ETF does not devote any of its weight to the financial services sector.

Although KFYP, which charges 0.68% per year, is not heavily traded, the fund rarely trades at excessive premiums or discounts to its net asset value. Most of the premiums or discounts to NAV seen by KFYP are no more than 0.5%, according to issuer data.

KFYP Sector Weights

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