Hong Kong-listed equities are on fire this year, aiding ETFs which investors might not readily expect. The ERShares Entrepreneurs ETF (ENTR) is one of them.
ENTR tries to reflect the performance of the Entrepreneur 30 Index, which is comprised of 30 U.S. companies with the highest market capitalizations and composite scores based on six criteria referred to as entrepreneurial standards. ENTR primarily invests in US Large Cap companies that meet the thresholds embedded in their proprietary Entrepreneur Factor (EF).
The ETF allocates more than 28% of its weight to ex-US stocks, according to Morningstar data.
“Among her favorites are Autonomous Aerial Vehicles (AAV) maker Ehang, and FinTech company FUTU. Both have exceeded 150% YTD performance with explosive growth that she believes will propel them higher,” according to ERShares, citing COO and Chief Investment Strategist Eva Ados.
The Right Way to Blend Domestic and International Exposure
ENTR also includes sophisticated screens to weed out undesirable companies. The factors screened include management, which requires set factors regarding a company’s management, such as the turnover among the top five executives within a company compared to other companies in the broader universe. A profitability screen requires a company to meet predetermined criteria regarding net income over a static threshold to be included, including the company’s net income as compared to predetermined benchmarks.
“Ados mentions the up to 50% discounted valuations that HK companies experience relative to mainland China and the US. She notes regulatory changes that now allow mainland Chinese investors to move directly into HK, which was not possible before,” according to ERShares.
As Ados also points out, there are some benefits that come with equities exposure in Hong Kong.
“With respect to the US, more investors are attracted to HK for not only the relatively attractive pricing but also the lower risk of being delisted on US exchanges,” notes ERShares. “The combination can sometimes produce exceptional run ups as the recent single-day 300% gain from Kuashou with last week’s IPO. She adds that currency gains only add icing to the cake. She remains bullish for International and Small Cap equities, especially those with a high growth entrepreneurial orientation.”