When it comes to investing in China, Core Values Alpha (CVA) will take an “America-first approach” with its first ETF. Therefore, CVA will invest in China, provided “American interests are not compromised,” according to portfolio manager Ben Harburg.
The actively managed Core Values Alpha Greater China Growth ETF (CGRO ) trades on the New York Stock Exchange. Specifically, according to the issuer, CGRO “approaches China investing through an ‘America first’ lens.” It provides “access to China alpha without compromising U.S. national security, American values, or economic and technologic leadership.”
Targeting Strong Fundamentals
“China’s market fundamentals remain strong,” Harburg said. “The country still has a long growth curve ahead of it, particularly relative to the U.S.” However, “exposure to China must not be obtained through investment in companies or vehicles that compromise U.S. national security interests, American values, nor its position as a global economic and technological leader.”
“CGRO… helps ensure the companies in the fund’s portfolio are positioned to deliver alpha,” he added. “But not to the detriment of the U.S.”
CGRO’s Active Process
CVA’s 15 investment professionals in China surface the highest alpha companies with substantial business exposure to China. At that point, the CVA China Risk Board reviews this basket of eligible equities.
At that point, every company in the universe of eligible equities receives a CVA China Risk Scorecard. This involves due diligence to trace supply chain, downstream customers, and direct and indirect risk factors. Specifically, these factors include support for the repression of civil liberties, ties to the Chinese military, susceptibility to U.S. sanctions, or the possibility of future sanctions.
These scorecards represent a company’s threat levels to American values, U.S. national security, targeting for U.S. sanctions, and America’s economic and technological leadership.
The fund’s management team actively manages the fund’s portfolio by considering all of the findings from the CVA China Risk Board and the range of CVA China Risk Scorecard results. Therefore, the result is a focused portfolio that provides secure exposure to China alpha.
Additionally, per Harburg, “investors should rethink the vehicles through which they are attaining China exposure.” This means “reweighting toward those that are actively managed and carefully navigating the landscape of China risks to ensure that American interests are not compromised.”
In addition to that, CGRO can target U.S. companies with meaningful exposure to China and an ongoing reliance on China for continued growth.
Actively Investing in China
CVA isn’t the only ETF issuer offering active exposure to China. The launch of CGRO comes hot off the heels of Neuberger Berman listing its active China ETF. Additionally, the actively managed Neuberger Berman China Equity ETF (NBCE ) targets high-quality companies tied economically to China.
“Most China focused ETFs listed in the U.S take a passive, index-tracking approach,” said VettaFi’s Head of Research Todd Rosenbluth. “This new ETF gets actively managed. Beyond that, it has discretion about what companies are part of the portfolio.”
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