Interested in China equities? You’re not alone – many investors entered 2024 with a desire to increase allocations to China. Unfortunately, the nation’s economy has continued to face some challenges.
Despite the significant opportunities available in sectors from tech to consumer goods, that risk and volatility may turn off some investors. That’s where a China ETF like the KraneShares China Internet and Covered Call Strategy ETF (KLIP ) can play a role.
See more: KraneShares Rolls Out Downside Hedged Equity Fund
The fund launched a year and a half ago. It charges 95 basis points for its intriguing fund-of-funds approach. The strategy almost entirely invests in the KraneShares CSI China Internet ETF (KWEB ). However, on top of that, it also sells one-month, at-the-money call options. That has helped KLIP return 10.9% over the last one-year period, per VettaFi.
That covered call strategy writes one-month, at-the-money FLEX call options on the full portfolio value. The fund sells those call options, which are European-style, exercised only at the end of each month. That approach helps it generate some income on the underlying index and reduce volatility.
For a China ETF, that could help provide investors exposure with some protection. So why look to a China ETF in the first place? U.S. equities have provided quite a few benefits to investors over the last two years, with tech in particular standing out. That being said, that has also comes with significant concentration risk. Just a select handful of names have driven a significant amount of returns.
Should a few of those firms disappoint, suddenly the U.S. equities landscape takes a hit. That’s why diversifying abroad in a China ETF can boost portfolios. China may be disappointing to some investors, but it remains a huge economy, with real upside potential. Its EV and internet companies, for example, are pushing for global leadership. For those looking for an intriguing China ETF to consider, KLIP may appeal.
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