DWS China technology
DWS, the asset management arm of Deutsche Bank, is launching an ETF targeting China’s technology sector, but in a strangely thematic way.
The Xtrackers Harvest MSCI China Tech 100 UCITS ETF (XCTE) will track the MSCI China All Shares Technology Select ESG Screened 100 index.
The index is made of four investment technology themes “of the future”. They are: internet, mobility, industrials and healthcare.
These four sectors are very broadly defined. For example, the internet includes obvious areas like cloud and social media. But also includes blockchain, cybersecurity and robotics. Mobility includes transportation and electric vehicles, but also battery manufacturers.
Companies are chosen based on revenue purity and keyword searches, as is standard for thematic ETFs.
Companies chosen are market weighted, subject to a 4.5% cap on the biggest players.
The fund applies a lightweight ESG screen that removes the eternal bad guys of coal, weapons, tobacco and pornography companies.
The fund charges 0.55%.
Bernie’s commentary – why use MSCI?
I like this idea a lot. China technology is a smart place to go investing as China’s import substitution – protectionist, mercantilist – policies protect its local businesses. This allows them to compete on a more level playing field than the US, which also protects and subsidises its technology companies through “national security” programmes.
That being said I’ve got some questions.
First in the choice of index provider. My understanding has always been that issuers providing China ETFs use the local index providers like CSI. Their reason being that the local companies have better data and deeper contacts within China than US index providers. As such the locals are more able to determine which companies belong in which sector. So I’d be interested to learn why they went for MSCI.
Other questions from me also relate to the ESG screen. When you’re covering China technology companies, do you really need an ESG screen that excludes coal miners and arms dealers? Is there anything more to this than marketing?
