ETF Trends CEO Tom Lydon discussed the Rayliant Quantamental China Equity ETF (RAYC) on this week’s “ETF of the Week” podcast with Chuck Jaffe on the MoneyLife Show.
RAYC employs a systematic approach that exploits mispricing in Chinese stocks. The strategy is localized to China, applying specialized data and models capturing features that make Chinese markets unique, including novel aspects of China’s accounting, regulations, market structure, state ownership, and investor behavior.
The fund is the world’s first actively managed China ETF to help investors hone in on emerging opportunities. Something to keep in mind, China outperformed in 2020 and could continue into 2021. The CSI 300 Index, which tracks the top 300 stocks traded on exchanges in Shanghai and Shenzhen, registered a 27% gain for the year.
Also worth explaining how China’s containment of the coronavirus and the return to economic growth has helped boost the value of Chinese stocks globally by about $5 trillion. More recently, the European Union and China agreed on terms of an investment accord, which helped the benchmark CSI 300 Index rise to its highest level since June 2015.
Looking ahead, market observers anticipate China will continue to benefit from the depressed global interest rates and the copious stimulus that has provided huge liquidity around the world’s financial system, along with the country’s rapid post-pandemic rebound.
In October, the International Monetary Fund projected Chinese GDP would advance 8.2% in 2021, following an estimated 1.9% rise for 2020. Beijing’s official gauge of factory activity finished the year at 51.9, in line with expectations and remaining above the 50 mark that separates expansion from contraction. China’s nonmanufacturing PMI, which covers services like retail, aviation, and software and the real estate and construction sectors, came in at 55.7 in December.
International investors are starved for growth and want to buy into Chinese companies that are quickly expanding. Attractive IPOs: from Chinese tech startups like video-clip and live-streaming group Kuaishou Technology, and carpool and ride-hailing firm Dida Inc. Chinese companies have sold more than $279 billion of stock, up 72% compared with 2019.
Chinese technology, health-care, and consumer companies will be some of the most important equity plays. Many Chinese companies merited greater attention, regardless of political tensions or sanctions limiting investments in some firms. Many focused on China for its resiliency and the potential for earnings. Trends such as China’s growing middle class and its increased spending on cutting-edge technological research.
As noted, Rayliant’s active strategy is designed to capture long-term excess returns in the world’s second-largest economy. It offers a really smart quantitatively-driven active approach to investing in China equity markets, which historically have only been available through passive exposure.
The opportunity to generate alpha against all of the access products that are out there. In a market where retail trading accounts for more than 80% of overall volume, China is one of the few major markets where active management can consistently deliver outsized returns.