With Chinese equity ETF markets going precisely nowhere, China ETF specialist KraneShares is diversifying its product suite, listing a series of US dividend-focussed ETFs. The funds will appear under the company’s legal name Krane Fund Advisors (KFA), rather than KraneShares.
- KFA Large Cap Quality Dividend Index ETF (KLCD)
- KFA Small Cap Quality Dividend Index ETF (KSCD)
KLCD will picks stocks from the Russell 1000 that have increased their annual per share dividends over the past 10 years. It will also build in a momentum screen that picks companies based on price risk-adjusted price momentum. At each quarterly rebalancing, companies that decrease dividends are removed. Companies are reweighted based on risk-adjusted and sector-balanced price momentum. The fund will aim to have at least 40 companies in the index.
KSCD will do much the same but pick small and mid caps from the Russell 2000.
Analysis – hard times, but a confusing response
KraneShares China ETFs – while interesting and sometimes brilliant – have had a hard time the past few months. As Trump’s trade war has done its intended job of smashing China’s equity markets, KraneShares funds have taken a really hard hit.
|Ticker||Fund Name||AUM||3 Month TR|
|KWEB||KraneShares CSI China Internet ETF||$1.43B||-15.86%|
|KBA||KraneShares Bosera MSCI China A Share ETF||$617.85M||-9.58%|
|KARS||KraneShares Electric Vehicles and Future Mobility Index ETF||$30.99M||-10.25%|
|KEMQ||KraneShares Emerging Markets Consumer Technology Index ETF||$26.38M||-6.95%|
|KURE||KraneShares MSCI All China Health Care Index ETF||$23.30M||-15.09%|
With this background, it makes sense that the company is looking to pivot elsewhere and product hedge.
Yet today’s listings strike as a bit of a confused hodgepodge. The funds are called quality dividend. Yet from where we sit, the fund names are a bit of a misnomer – as they screen explicitly for momentum not quality. To the extent any quality screen exists, it consists in searching for companies with “appreciating annual dividends as a measurement of quality,” the prospectus says. Yet this seems more of a reiteration of the funds’ original dividend interest.
If the fund is a dividend play, it seems the better factor choice would be value not quality — less still momentum. What tends to matter to income investors is yield not dividends per share. (Dividends per share says nothing about the price of a company’s share, and nothing about how much you have to pay to get your hands on their dividends). As such, a value screen seems more appropriate than a momentum screen.
In all, these new listings, much like the company’s recent EM ex-China ETF, which very confusingly was an iShares copycat but at a higher price, leave us a bit confused.