China equities present a wide range of exciting opportunities, but much of that excitement right now relies on government support. While the market offers significant potential, from electric vehicles to e-commerce, ongoing concerns about real estate debt have loomed over much of that positivity.
How, then, should investors approach such a huge market with diversification and upside potential? The KraneShares China Internet and Covered Call Strategy ETF (KLIP ) can present an intriguing route in.
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The fund launched just over a year ago. It has gathered more than $100 million in AUM in that short time. So, what about its approach can intrigue? KLIP takes a fund-of-funds approach. The China ETF invests in the KraneShares CSI China Internet ETF (KWEB ), a popular route into China equities.
On top of KWEB, however, KLIP also sells one-month, at-the-money call options on the full amount of the portfolio. That provides some extra yield, selling the call options European-style, or exercised at the expiration date each month. By using those FLEX options, the fund can offer a bit of current income and reduce volatility.
For a limited, but still positive, outlook on China, KLIP can provide a potent option. There are real, continued merits to diversifying into a China ETF, with KWEB providing exposure to a growing Chinese consumer base. At the same time, however, its ability to provide current income can help an overall portfolio keep level if U.S. stocks fluctuate.
KLIP has returned 9.3% since inception, per data from KraneShares. That stands out compared to, for example, the Broad-Based Securities Market Index (BBSMI). On an annualized basis, KLIP has returned 12.% over the last one-year period. Taken together, the China ETF’s combination of current income, diversification, and China potential makes it a worthwhile option entering the close of the year.
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