New Invesco ETF aims to capture most innovative technology companies in China
Invesco has launched the MSCI China Technology All Shares Stock Connect UCITS ETF, which follows an index that applies a sophisticated, modern definition of technology to a broad coverage of China companies.
It focuses on innovative technologies rather than just computer hardware and software businesses.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, says: “China has long been known for its capacity to mass-produce and export goods, but the modern China is now home to many of the world’s biggest innovators involved in cutting-edge technologies. Beijing aims to transform the country into a global leader in innovation and its latest Five-Year Plan emphasised a focus on achieving major breakthroughs in core technologies and annual increases in R&D spending.”
Chris Mellor, Head of EMEA ETF Equity and Commodity Product Management at Invesco, says: “Our new ETF provides investors an effective way to get exposure to a broader array of innovative businesses than they would find in the traditional technology sector. In fact, companies in the information technology sector account for less than 20 per cent of the index weighting. The largest sector exposures are currently in consumer discretionary and communication services. However, this isn’t a sector ETF. The focus is where a company is making its money, what technologies are underpinning its revenue. In that way, sector classification is immaterial.”
The Index has been designed to focus on Chinese companies that derive significant revenue from the development of new products and services from technology innovations in areas such as internet and digitalisation, mobility, autonomous technology, industrial innovation and digital healthcare. MSCI calculates a “relevance score” for each stock in the MSCI China All Shares Stock Connect Index to reflect the proportion of revenues generated by business areas associated with this objective.
Mellor says: “Companies with a low relevance score are removed from the index. Illiquid stocks are also taken out to improve tradability. MSCI then selects the 100 largest companies and weights each of those final constituents by multiplying the company’s relevance score by its free-float market capitalisation. This tilts the exposure towards companies earning more revenue from these technologies.”
This new fund is the second ETF launched by Invesco in 2021 that offers investors targeted exposure to China. The Invesco MSCI China All Shares Stock Connect UCITS ETF was launched in March and follows the index that the newest ETF uses as its starting universe. The firm considers the MSCI China All Shares Stock Connect index to be a more comprehensive and truer representation of China’s fast-growing, domestic-driven economy than is offered by competing benchmarks.