China-focused KraneShares rolls out China Internet ETF

Thu Aug 1, 2013 4:40pm EDT

Aug 1 (Reuters) - KraneShares, a startup exchange-traded fund company focused chiefly on China, is banking on the performance of Chinese Internet companies with a new ETF for the sector.

The New York-based firm on Thursday launched its KraneShares CSI China Internet ETF, which offers exposure to Chinese Internet and Internet-related companies listed either in Hong Kong or outside of China. The ETF trades on the Nasdaq.

"The adoption of the Internet and technology by 1.3 billion people is certainly a very compelling argument," said KraneShares managing director Brendan Ahern in an interview.

He pointed to the migration of China's rural population to urban areas, which he expects to fuel internet usage.

The decision to focus on Internet businesses is a departure from some of the already established China ETFs, which tend to be heavier in financials.

The iShares China Large-Cap ETF, for example, is more than 50 percent in financials, while the iShares MSCI China ETF and SPDR S&P China ETF are also predominantly financial - 39 percent and 33 percent, respectively.

"We didn't feel that that's representative not only of their population, but not of their economy either, and clearly not of where their economy is going," Ahern said.

The benchmark for KraneShares' new China Internet ETF is the CSI Overseas China Internet Index. Passively managed funds, such as this ETF, are designed to mirror the performance of an index.

The index's components include companies whose primary businesses involve Internet software and services, Internet retail services, home entertainment software and mobile Internet, among others.

The new ETF is the second of a set of seven that KraneShares plans to list. The firm last week launched its KraneShares CSI China Five Year Plan ETF, which is focused on businesses that stand to benefit from China's five-year economic development plan published twice a decade. That ETF trades on the New York Stock Exchange.

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