China Theme ETFs and Their Underlying Indexes – ASHR, FXI and KBA

Since China opened its door in the 1980s, embracing capitalism that’s been long abhorred ideologically, the economy took off phenomenally, growing at an astonishing velocity of 8-9% per year, leading to a handful of China Theme ETFs pushed to the market.

ASHR, the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF, was the first US-listed China ETF. Launched in 2013, ASHR has gained $351 million assets to date. It directly tracks CSI 300 index because of the subadvisor Harvest Global Investments, has an RQFII license up to a specific quota. If the quota is reached, the fund will have to either get its quota increased, use derivatives to maintain exposure, or limit or halt creations, so monitoring is warranted. Since it tracks an index specific to A-shares so Chinese companies solely listed in Hong Kong or the U.S. stock exchange won’t’ be included, it does not offer a complete and exhaust Chinese stock list.

FXI, the iShares FTSE China Large-Cap ETF, issued by BlackRock early in 2004, has amassed $3.14 billion as of May 2017. It is benchmarked against the FTSE China 50 Index. The constituents of the FTSE China 50 Index are derived from the FTSE All-World Index universe and shall be current constituents of this Index. All classes of equity in issue are eligible for inclusion in the FTSE China 50 Index subject to certain liquidity and class constraints. Therefore, FTSE China Index does not have the drawback of CSI 300 that it only contains the mainland-listed stocks.

KBA, KraneShares Bosera MSCI China a Share ETF, is a small fund, tracks MSCI China and International Index. It was launched in March 2014 and has now close to $110 million assets. It holds a greater number of stocks -241- more than both ASHR and FXI. The MSCI China an Index is the first index created by MSCI for the China a share market, which includes shares listed on both the Shanghai and Shenzhen Stock Exchanges.

Now let’s compare their performance over the past years. Given the unique characteristics of Chinese stock market, years of up-trending economy growth is not well synchronized to the equities performance, the chart below portrays a high fluctuation, but no steady rising price pattern.

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