China Market ETF

China Leaders ETF (SGX:YYY) Update – July 2022

Calvin Lo

Lion-OCBC Securities China Leaders ETF (SGX ticker YYY for SGD counter, YYR for RMB counter) recently published their Q2 2022 newsletter on 6th July 2022 (link here) and announced its first dividend/distribution on 24th June 2022.

Since we’re approaching the anniversary of this ETF (launched 2 Aug 2021), let’s take a look at what’s the latest developments, how it’s performing and whether it’s worth adding to your portfolio.

If you’re not familiar with the China Leaders ETF, I covered the the basics in this video:

If you just want to read my quick analysis and thoughts, check out my post here.

Performance

YYY has been performing pretty well since inception, outperforming even the iShares MSCI China ETF (ticker MCHI), which is the biggest China ETF by assets. YYY also outperformed Chinese tech ETFs CQQQ and HST.

However, YYY is still down -12% since inception (roughly 1 year ago). But that’s expected seeing how Chinese stocks in general have been on the decline since peaking back in Feb 2021.

What’s impressive is that YYY is actually matching the performance of the S&P 500 ETF (ticker SPY) over the same period. In comparison, MCHI was down -29%.

Source: TradingView

The Q2 2022 newsletter also provided the charts below showing how the HSC80 index has outperformed several other indexes and how YYY has outperformed peer ETFs.

Source: Lion Global Investors

Dividend/Distribution

YYY announced on 24th June 2022 its first ever annual dividend (or distribution since its an ETF) of 3.3 cents per share, representing a dividend yield of roughly 1.78% at the time.

Read: Lion-OCBC China Leaders ETF declares first dividend of 3.3 cents per share

In comparison, MCHI and SPY have distribution yields of 1.43% and 1.54% respectively. If you’re a Singapore-based investor, that distribution is subject to a 30% withholding tax so you end up with roughly 1% net distribution yield for both those ETFs.

That’s a pretty huge difference especially if you’re a dividend investor looking forward to that income.

Changes in constituents

YYY is indexed to the Hang Seng Stock Connect China 80 Index (HSC80). HSC80 index constituents are reviewed twice a year. So far since its launch in Aug 2021, there have been 2 reviews – Sep 2021 and Mar 2022.

Both reviews resulted in pretty significant changes, around 8 to 10 constituents were added and removed each time out of the 100+ constituents. HSC80 now has 109 constituents as of this writing.

I’m not familiar with most of the companies being added or removed, but there seems to be quite a few new economy stocks (e.g. social media, consumer tech, electric vehicles) like Kuaishou, Haier Smarthome, Xpeng added the last round in March.

There’s also seems to be a bit of a merry-go-round happening, with constituents moving in and out. For instance, China Telecom was recently added back after being removed in Sep 2021. In contrast, JD logistics was removed after just being added in the prior review.

Source: Hang Seng Indexes

Holdings

Although there seems to be many constituent changes, the top 10 holdings didn’t change much. Tencent is still the largest holding and Alibaba is nowhere to be found.

Source: Factsheet from LGI

Comparing this to the original top 10 at launch (below), the only difference seems to be that ICBC has replaced CMB in the top 10.

Closing thoughts

The more I look at YYY, the more attractive it is becoming in my eyes. YYY offers broad exposure to China through Chinese companies listed in HK and China mainland A-shares, yet avoids the risks imposed by foreign exchanges by not owning any ADRs. In my view, YYY also offers a good balance of growth and dividends.

On a macro level, China seems to be coming out of lockdowns and tech crackdown (though you’ll never know if they reverse course), and the PBOC seems to be on a path of monetary easing. Chinese stocks have also been recovering and appear to be gathering positive momentum.

If you’re looking for broad exposure to China, YYY might be a good choice for you (not financial advice).

Disclosure: I do not currently hold any position in YYY.

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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