Goldsborough notes the varying portfolio approaches explain why the PowerShares fund has emerged as the category winner by delivering a 29 percent annualized return––roughly three percentage points better than the First Trust offering––during the past five years.
And S&P Capital IQ’s Rosenbluth tips his cap to the PowerShares fund. “We focus on earnings consistency and dividend growth to determine quality, and the PNQI fund reflects slightly higher quality.
China Pure-Play
As its name implies, the KraneShares CSI China Internet ETF (KWEB) provides 100 percent exposure to fast-growing Chinese Internet stocks. While many China-focused ETFs such as the iShares China Large-Cap ETF (FXI) or the iShares MSCI China (MCHI) have risen a respectable 10 percent in the past 12 months, KWEB has shot up an impressive 40 percent since it was launched on August 1, 2013. The fund carries a 0.68 percent expense ratio.
“The legacy ETFs are exposed to large, established Chinese companies in industry, banking and other mature sectors,” says Brendan Ahern, managing director of KraneShares. “They have little to do with the ‘New China.’”
His firm eschews the industry practice of only investing in Chinese companies listed in Hong Kong, the U.S. and elsewhere. “Mainland (listed) firms have been ring-fenced from foreign investors,” says Ahern, whose suite of China-focused funds taps into Chinese mainland stocks. In addition to KWEB, the company within the past year has launched the KraneShares CSI China Five Year Plan ETF (KFYP) and KraneShares Bosera MSCI China A Shares ETF (KBA).
Ahern squarely addresses the concern that Chinese companies represent the risk of fraud or accounting shenanigans. “This was a real problem a few years ago, giving a black eye to the companies, underwriters, exchanges and accounting firms involved,” he says, adding that all of the companies that go into the index that underpins KWEB must adhere to rigorous reporting requirements. “There is much greater scrutiny in place—too much is at stake,” he says.
Will fast-growing Internet stocks lead the market in coming years as well? Time will tell, but it is clear that the key catalyst behind them in the past—robust sales growth—is likely to remain in place for the foreseeable future as well. For investors willing to tolerate higher risk and volatility in exchange for robust top-line growth, these Internet ETFs should continue to hold great appeal.