We’re very excited to announce our latest collaboration with VanEck—the first one with VanEck Europe—which expands the list of China-focused ETFs tracking a MarketGrader Index to three. The new VanEck Vectors New China ESG UCITS ETF, which listed yesterday on the London Stock Exchange and Xetra Deutsche Borse, tracks the MarketGrader New China ESG Index. You may read VanEck’s press release here.
The new ETF builds upon the success of the VanEck China New Economy ETF, which has been listed in Australia since 2018 (ASX: CNEW), and tracks the MarketGrader China New Economy Index. That Index has held up very well during all the turmoil in Chinese markets this year, declining only 2% year to date, compared to declines of 17% for the MSCI China Index, and 5% for the CSI 300 Index. Like that Index, the New China ESG Index selects the best companies based on MarketGrader’s GARP analysis from China’s four new economy sectors: Consumer Discretionary, Consumer Staples, Health Care, and Technology. On the other hand, unlike the “original” MarketGrader New Economy Index, which only selects stocks listed on China’s Mainland exchanges in Shanghai and Shenzhen, the New China ESG Index may also select Chinese companies that are listed in Hong Kong or on U.S. exchanges.
MarketGrader’s First ESG-Focused Index
Among the most exciting features of the new Index, and the ETF that tracks it, is a unique ESG screen that uses a “wisdom of the crowds,” and purely quantitative approach, to rank all companies in the underlying universe according to environmental, social, and governance factors. It marks MarketGrader’s first foray into the world of ESG investing, where we have partnered with a leader in the space, OWL Analytics. Several years in the making, our partnership with OWL came from our desire to build thoughtful, ESG-focused indexes without straying from our original mission of helping inventors achieve superior outcomes by owning the world’s best companies. Our partnership arose from the shared view that investors are better served by strategies that use objective, quantitative and rigorous analytics in identifying long-term growth compounders, while steering clear of subjective, ethical considerations expressed through an investment portfolio. We’ll have a lot more to report on this exciting partnership soon; in the meantime, you may read more about the MarketGrader -OWL combination collaboration on the New China ESG Index here.
Staying the Course in China
The road ahead for Chinese investors is not without peril and certainly not without plenty of unexpected turns. However, our overarching investment thesis for owning some of the country’s best companies is largely unchanged from when we started covering Chinese stocks almost a decade ago. Despite the increasingly interventionist turn the government has taken in the last year, we remain convinced that capital markets—especially equities—will play a central role in China’s economic rebalance. It’s the only avenue by which the country’s households, with the world’s second largest balance, can realistically migrate away from an unsustainable savings model centered on real estate property towards one in which they might more equitably participate in the country’s prosperity. The ongoing Evergrande saga might turn out to be the catalyst that precipitates this change.
(Read our recent port on China Evergrande here).
 All returns are net total returns in USD. Source: Bloomberg.