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CQQQ: The Chinese Nasdaq

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Thesis

The Invesco China Technology ETF (NYSEARCA:CQQQ) is an speech traded money that intends to seizure Chinese tech companies returns. The money contains some onshore listed A-shares, arsenic good arsenic U.S. listed ADRs:

The Invesco China Technology ETF is based connected nan FTSE China Incl A 25% Technology Capped Index. The Fund will put astatine slightest 90% of its full assets successful securities that comprise nan Index arsenic good arsenic American depositary receipts and world depositary receipts based connected nan securities successful nan Index. The Index includes constituents of nan FTSE China Index and FTSE China A Stock Connect Index that are classified arsenic accusation exertion securities, including China A-shares and China B-shares. The FTSE China Index represents nan capacity of ample and mid headdress Chinese stocks included successful nan FTSE Global Equity Index Series universe. The FTSE China A Stock Connect Index is designed to correspond nan capacity of eligible securities successful nan FTSE China A Index. The scale is computed utilizing nan nett return, which withholds applicable taxes for non-resident investors. The Fund and nan Index are rebalanced quarterly.

The money tin beryllium considered a Chinese Nasdaq, fixed its instruction to beryllium overweight Chinese exertion stocks. The money managers person hinted towards this positioning via its naming convention, which brings together nan first first for 'China' and nan well-known Nasdaq ticker 'QQQ'.

The money is an replacement to nan overmuch amended known KraneShares CSI China Internet ETF (KWEB), and connected a semipermanent ground has a amended full return. A glaring quality betwixt nan 2 costs correct now is nan absence of Alibaba (BABA) aliases JD.com (JD) from nan CQQQ fund. On nan different hand, KWEB has a 9% and 5% allocation to these 2 ample U.S. listed Chinese companies.

CQQQ runs overmuch little de-listing consequence via its portfolio, which is chiefly composed of on-shore listed A shares and B shares:

China A-shares tin beryllium defined arsenic nan banal shares of nan companies that are based retired of China, and these shares are traded successful Renminbi (the section rate of China) connected nan 2 securities speech markets of China that is SZSE (Shenzhen Stock Exchange) and nan SSE (Shanghai Stock Exchange).

The money has risen 30% since its October lows, and is now starting a consolidation pattern. With nan China re-opening earlier successful nan year, we expect economical activity to prime up arsenic nan twelvemonth progresses.

Analytics

  • AUM: $1 billion.
  • Sharpe Ratio: 0.06 (3Y).
  • Std. Deviation: 34 (3Y).
  • Yield: 0.07%.
  • Premium/Discount to NAV: n/a.
  • Z-Stat: n/a.
  • Leverage Ratio: 0%

Holdings

The money is overweight exertion stocks:

sectors

Sector Allocation (Fund Fact Sheet)

When looking astatine its apical individual names we spot a operation of A-shares and ADRs:

facts

Top Holdings (Fund Fact Sheet)

We tin spot nan money having a very ample position successful Tencent (OTCPK:TCEHY), followed by onshore listed shares from Meituan (OTCPK:MPNGF) and Baidu (BIDU).

Performance

On a 1-year lookback, KWEB somewhat outperforms CQQQ:

returns

Total Return (Seeking Alpha)

However, longer term, CQQQ is nan clear winner:

total

Total Return (Seeking Alpha)

We tin spot that connected a 5-year lookback CQQQ outperforms, and much importantly, it has a full return floor plan that is perpetually higher than KWEB's. By looking astatine nan supra chart we tin announcement nan orangish statement which highlights CQQQ's full return is supra nan bluish statement perpetually passim time. This is simply a stronger connection than conscionable a axenic lookback outperformance, since it represents a changeless amended return profile.

Returns successful nan abstraction person been highly volatile successful nan past decade:

returns

Annual Returns (Morningstar)

We tin observe from nan yearly full return array supra that absent nan 2014-2016 period, nan money posted full returns successful excess of 20% connected an absolute basis. That is simply a awesome woody of volatility, but besides offers immoderate years of oculus watering returns, specified arsenic nan 74% return recorded successful 2017.

Conclusion

The Invesco China Technology ETF is an speech traded money that intends to seizure Chinese tech companies' returns. The money is overweight Technology stocks, which constitute complete 42% of nan fund's portfolio. The conveyance usually invests successful Chinese equities via A-shares and B-shares, frankincense having a very debased sensitivity to de-listing fears coming via nan U.S. listed ADRs. CQQQ represents an replacement to nan overmuch amended known KraneShares CSI China Internet ETF. While successful nan past twelvemonth CQQQ has underperformed KWEB, longer word (5- and 10-year lookbacks) CQQQ is nan amended performer. To statement that location are immoderate glaring absences from CQQQ's portfolio, specified arsenic nan U.S. listed BABA and JD, which tin beryllium recovered successful KWEB's portfolio. After a unsmooth 2022, CQQQ is amended set-up for 2023 pinch nan China re-opening.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Binary Tree Analytics floor plan picture

With a financial services rate and derivatives trading background, Binary Tree Analytics intends to supply transparency and analytics successful respect to superior markets instruments and trades._____________________________http://www.BinaryTreeAnalytics.com

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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