ETF TV News #93 Jonathan Krane, CEO, KraneShares discusses investing in China and Carbon allowances on ETF TV

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I am Margareta Hricova and joining me today is Deborah Fuhr and Jonathan Krane, CEO of KraneShares.

Welcome to the show.

Jonathan Krane: Thank you very much.

Deborah Fuhr: Thank you.

Margareta Hricova: Jonathan, can you share with us the backstory of why you set up KraneShares?

Jonathan Krane: I lived in China for five years, actually growing a company in the media entertainment space, and through that initiative, I really started seeing all these incredible growth trends happening in China. And when I got back to the states, I saw an opportunity in the ETF sector and also looked at China as a mega trend that was very underrepresented in investor portfolios. So we launched KraneShares in 2013, really to provide education to a lot of the global investors, and as we’ve grown KraneShares over the last eight years, that singular focus on China, I think, has really benefited our clients.

Deborah Fuhr: Last week, you listed three new ETFs on the New York Stock Exchange. Two of them are about carbon allowances, which is a relatively new area. So one is for Europe and one is for California. Can you tell us, what is carbon allowances and what types of investments would be inside of these ETFs?

Jonathan Krane: Sure. Carbon allowance is the right to emit one metric ton of CO2 into the atmosphere. So these allowances are allocated under regional, emission trading systems and allowances can be bought and sold according to demand. And these ETFs purchase futures on the underlying carbon allowances. Our first fund, KRBN, brought in three exchanges. A lot of clients have asked us to actually break out the different exchanges, so last week we listed KEUA, which is the European exchange, and then also KCCA, which is the California Exchange.

Margareta Hricova: And one of the new listings was a China innovation ETF. How do you define innovation in China and is now a good time to be investing in the Chinese equity and bond market?

Jonathan Krane: Innovation in China has been driven by the transformation from old China to New China, and that’s really a shift away from export reliance towards domestic consumption, the rising middle class and really sort of the mega theme of urbanization, you know, hundreds of millions of people moving to cities and making more money. And so KGRO, which is our innovation fund; it’s really five different, thematic ETFs. One is China internet, we have China healthcare, China clean technology, China 5G and semiconductor, and then also the China STAR Market, which is sort of a NASDAQ-type of technology exchange for more early stage companies in China.

Deborah Fuhr: You do have a set of ETFs that are here in Europe, as well as a set in the US. Do you see differences in the types of products that investors are using and also are the investors different?

Jonathan Krane: We’ve seen a lot of interest from Europe, so we’ve actually brought some of the US-listed funds to Europe because there was demand for the UCITS platform. So that’s around China internet, China A-shares, and you know, some of the thematic funds that we’ve talked about. In Europe, we’re seeing the same type of investors from institutions down to wealth management and also retail buying through wealth management. But having a UCITS platform has actually helped us also globalize to a lot of different markets.

Margareta Hricova: And do you have plans to launch more ETFs?

Jonathan Krane: Absolutely. So we’re building out our carbon suite. We see that as a real future in carbon becoming a key commodity, so we’ll continue there. We also see a lot of interest from clients around China on the equity side, but also now on the fixed income side as the China Interbank Bond Market (CIBM), now the second largest bond market in the world, starts opening up more, too. So really, at KraneShares, we’re looking at China as its own asset class now as it becomes the largest economy in the world in the coming years.

Margareta Hricova: That’s great. Thank you for joining us, Jonathan.

Jonathan Krane: Thank you very much for having me today.

Margareta Hricova: Debbie, can you tell us about some of the other news in the ETF industry?

Deborah Fuhr: So last week was a pretty quiet week; there were only 21 new listings from 13 issuers and there were 36 new cross listings. We now have the early set of data looking at what were the flows and assets at the end of September, and so assets declined slightly given there was some market move going down. There’s now 9461 ETFs with 19.094 listings. Assets are sitting at 9.5 trillion US dollars. There is 580 providers listed on 79 exchanges in 62 countries.

If we look at the year-to-date flows, this is pretty impressive. We see that the flows, year-to-date, are 924 billion. If we compare that to last year, at this point we were just over 460, and in all of last year was 762. So we are significantly, almost double of where we were at this point last year and significantly above all of last year. I expect we will see over a trillion dollars in net inflows this year, which is really an amazing number when you think about it.

In terms of new ETFs, there’s been 1288 new products come to market from 274 providers. If we were to look at last year, at this point there were only 788 from 195 providers, so we see more listings and we also see more issuers listing products.

In terms of closures, there’s 291 this year, whereas last year there were 473, so fewer products closing this year. And when we look at how big products get bigger, right now we see that the top 100 ETFs that are over 9000, account for 52% of all the assets, so we have some really big, attractive ETF for many investors, and we have a lot of smaller ones. Doesn’t mean they’re not attractive. Many of them are new. But I think that some of the updates that we’ve seen in the data as we’re cleaning it.

Margareta Hricova: Thank you for that update, Debbie, and thank you to our sponsors Syntax Advisors, to Jonathan, and of course to all of you for watching. To watch prior episodes and to see news from the ETF industry. Visit ETFTV.NET.

Thank you.

ETF TV News does not provide investment advice, nor recommend products.

Published on October 13, 2021