On Wednesday, KraneShares rolled out its latest China-focused fund, the KraneShares China Alpha Index ETF
KCAI operates with a net expense ratio of 0.79%. The fund aims to provide similar results to that of the Qi China Alpha Index.
Developed by fund subadvisor Quant Insight, the Qi China Alpha Index’s goal is to use machine learning to outperform the CSI 300 Index. To do so, the index uses an alpha-optimized filtering process in combination with proprietary AI technology. By using the Qi China Alpha Index, KCAI can potentially provide outperformance within the China A-Share Market.
AI-Optimized Portfolio
“China’s A-Share market is a prime candidate for this strategy. Our research shows it has inefficiencies and volatility. It is also dominated by retail investors,” said Mahmood Noorani, CEO of Quant Insight. “This creates significant market ’noise’—an opportunity our AI-powered machine learning algorithm is uniquely positioned to exploit.”
A wide variety of factors remain in consideration for Quant Insight’s AI process. These factors include market trends, historical pricing, sector classification, market cap, and security weights, among others.
Securities within the QI Alpha Index’s portfolio receive the wide majority of the assets’ allocation. But KCAI may invest in assets outside of the index. This includes derivatives, other ETFs, cash or cash equivalents, or equities outside the underlying index.
Generally, the fund intends to use a replication strategy to better track the underlying index. However, KCAI reserves the right to pivot to a representative sampling strategy instead.
KCAI’s fund prospectus notes that the index contains 36 securities as of Aug. 6, 2024. These securities possess an average market cap of roughly $22 billion.
“It has been challenging for active managers to produce consistent alpha in the China A-Share market in recent years,” noted KraneShares CIO Brendan Ahern. “We believe KCAI’s AI-driven approach has the potential to outperform the broad market consistently and its rules-based strategy [may be] a source of portable alpha for global investors.”
KraneShares has extensive experience in piloting China-focused fund strategies. One of KraneShares’ largest funds, the KraneShares CSI China Internet ETF (KWEB), has over $4.2 billion in assets under management.
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