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Will Alibaba's Earnings Dull the Shine of These ETFs?

Sweta Killa

Chinese e-commerce giant Alibaba Group BABA reported fourth-quarter fiscal 2017 results after the closing bell yesterday. While the revenue performance was encouraging, profitability was a big disappointment as it took hit from a higher tax bill.

Earnings of 39 cents per ADS came in below the Zacks Consensus Estimate of 47 cents. Revenues jumped 60% year over year to $5.6 billion and surpassed our estimate of $5.18 billion. Robust performance was credited to the growing core e-commerce business, booming cloud computing services and strong media and entertainment growth.

Core e-commerce revenue grew 47% year over year, cloud computing revenue soared 103% while digital media and entertainment revenue skyrocketed 234%. Mobile monthly active users on its China retail marketplaces increased 24% year over year to 507 million while annual active buyers reached 454 million, up 7% year over year (read: How are China ETFs Outperforming the Market in 2017?).

Separately, the company announced that it will buy back worth up to $6 billion shares over the next two years.

Market Impact

The earnings miss has pushed BABA shares down as much as 5.6%, marking the biggest one-day drop since June. Meanwhile, the stock crushed its average daily volume figures, as nearly 37.1 million shares moved hands compared with just 9.9 million on daily average. Despite the slide, the stock is up 38.1% in the year-to-date timeframe crushing the Zacks Categorized Electronic Commerce Market returns of 31.2%.    

Currently, Alibaba has a Zacks Rank #3 (Hold) with a VGM Style Score of C and boasts a solid Industry Rank in the top 16%, indicating room for upside in the near term (see: all the Technology ETFs here).

Given this, ETFs having the highest allocation to this Chinese e-commerce giant will be in focus in the days ahead. Investors should closely monitor the movement in these funds and grab the opportunity when it arises. However, most of these ETFs have seen rough trading following Alibaba results.

BLDRS Emerging Markets 50 ADR Index Fund ADRE
The product offers exposure to the 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 40.5% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 12.6%. Brazil, Taiwan and India round off the next three spots in terms of country exposure. From a sector look, information technology accounts for 37.3%, followed by financials (17.6%), telecom services (13.6%) and energy (9.5%). ADRE has amassed $137.6 million in its asset base while trades in a light volume of about 9,000 shares. It charges 30 bps in fees per year and lost 2.9% on the day. ADRE has a Zacks ETF Rank of 3 with a Medium risk outlook (read: Why Emerging Market ETFs Are Surging This Year).

iShares MSCI China ETF MCHI

This ETF follows the MSCI China Index, holding 150 securities in its basket. Out of these, Alibaba takes the second spot at 11% share. From a sector look, about one-third of the portfolio is allotted to information technology while financials and consumer discretionary round off the next three spots with double-digit exposure each. The fund has amassed $2.4 billion in its asset base while charging 61 bps in annual fees. Volume is also solid as it exchanges more than 1.3 million shares in hand on an average daily basis. The ETF is up 0.2% following the results and has a Zacks ETF Rank of 3 with a Medium risk outlook.

First Trust International IPO ETF FPXI

This product provides exposure to the largest and most liquid companies that are domiciled outside the U.S. by tracking the IPOX International Index. Holding 50 stocks in its basket, Alibaba occupies the top position with 10.6% allocation. About one-third of the portfolio is skewed toward Chinese firms while Japanese firms account for 20.4% share in the basket. From a sector look, financials takes the largest share at 36.3%, closely followed by consumer discretionary, information technology and industrials. The product has been able to manage $1.5 million in its asset base and charges 70 bps in fees per year. Volume is light, exchanging about 5,000 shares in hand on average. It shed 0.3% post Alibaba results and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Guggenheim BRIC ETF EEB

This product provides exposure to BRIC countries and follows the BNY Mellon BRIC Select DR Index. In total, it holds 107 stocks with Alibaba at the top position, accounting for 10.6% of assets. About one-fourth of the portfolio is dominated by information technology while energy and financials round off the next two spots with a double-digit exposure each. The ETF has $82.1 million in AUM and sees paltry volume of around 13,000 shares. Expense ratio came in at 0.64%. The fund lost 3.9% on the day and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Guggenheim China Technology ETF CQQQ

This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index. Holding 73 stocks, Alibaba occupies the second position in the basket with 9.6% share. In terms of industrial exposure, about 48.6% of the portfolio is allotted to Internet software & services while electronic components, semiconductors, electronic manufacturing services and technology hardware & storage rounding off the top four. The product manages an asset base of $90.3 million while trades in small volume of around 16,000 shares a day. Expense ratio came in at 0.70%. CQQQ lost 0.4% on the day, following Alibaba results and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook (read: 2017 Brings Luck for China ETFs: Will the Rally Last?).

KraneShares CSI China Internet Fund KWEB

This product provides a concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 35 securities in its basket with Alibaba occupying the second spot at 9.4%. The technology sector makes up for a substantial 60% of total assets, while consumer discretionary takes the remainder with just 2.5% allotted to industrials. The ETF has amassed $420.2 million in its asset base and charges 72 bps in annual fees from investors. Volume is good as it exchanges more than 139,000 shares in hand per day. KWEB added 0.4% in the last trading session following the Alibaba earnings announcement and currently has a Zacks ETF Rank of 4 with a High risk outlook.

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