China Is Spending Big On 5G, Chips. Now There's An ETF For That.

China is one of the largest technology markets in the world and the world's second-largest is spending heavily on the 5G rollout.

What Happened: Thanks to the debut of the KraneShares CICC China 5G & Semiconductor ETFKFVG last week, now there's an exchange-traded fund dedicated to China's insatiable thirst for chips and its free spending 5G ways.

The latest ETF from New York-based KraneShares tracks the CICC China 5G and Semiconductor Leaders Index, which provides exposure to “companies engaged in the 5G and semiconductor related businesses, including 5G equipment, semiconductors, electronic components and big data centers,” according to the issuer.

Why It's Important: KFVG is relevant on multiple. As recent trade flaps with the U.S. confirm, China has a voracious thirst for semiconductors and even if tensions with the U.S. ebb, China is still intent on bolstering its domestic chip industry. The country is hoping to produce 70% of needed chips on a domestic basis by 2025. Additionally, the country is on track to become by far the world's dominant 5G market.

“China is a world leader in 5G spending and adoption. By 2025, China is projected to have over 400 million 5G users, accounting for 40% of total global use,” notes KraneShares.

Investors appear to be smitten with KFVG as it's already among this year's top thematic ETFs in terms of asset-gathering proficiency, having hauled in $107.1 million as of Nov. 27.

“China has announced plans to spend $1.2 trillion yuan ($180 billion USD) to establish over 5 million 5G base stations throughout the country over the course of 2020-2025,” notes KraneShares. “Over the next five years, China’s telecom industry will spend at least $130 billion on 5G, roughly representing a third of total global capital expenditures.”

What's Next: Home to 30 stocks, most of which hail from the communication services and technology sectors, offers investors a tactical avenue for potentially generating long-term outperformance of traditional China benchmarks.

For example, KFVG component SMIC, a semiconductor maker, has a 10-year average annualized return of 12.5% compared to 6.8% for the MSCI China Index. Telecommunications gear maker Luxshare, another KFVG holding, delivered average annualized returns of almost 48% over that decade. That company makes components for Apple's Air Pods and the Apple Watch.

KFVG charges 0.65% per year, or $65 on a $10,000 investment, which is reasonable in the realm of China thematic ETFs.

Posted In: 5GChinaLong IdeasSector ETFsEmerging MarketsNew ETFsEmerging Market ETFsTop StoriesMarketsTrading IdeasETFs

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