Top Thematic and ESG ETFs for June 2022

The Chinese market boarded a wild ride in 2022. Chinese companies had to survive months of crackdowns as the central government in Beijing attempted to curb their power. At the same time, the adopted zero-covid policies and nationwide lockdowns wiped out trillions of dollars.

China’s businesses have felt the economic weight of the Zero Covid stance adopted by Chinese authorities. The CSI 300, a central Chinese equity gauge, tanked as much as 20% over the year. But Chinese officials announcing the easing of pandemic-induced restrictions and ending megacities lockdowns has changed the landscape. Benchmark indices in mainland China and Hong Kong are expected to reverse the previous losing streak while posting at least 4% gains by year-end, according to a Bloomberg survey of 19 fund managers and analysts. Additionally, China declared a fully-fledged package to resuscitate its pandemic-ravaged economy. The package spans 33 measures across different fiscal, financial, investment and industrial policies, while Beijing approved over 60 new game licenses bolstering hopes that the yearlong crackdown will end. 

On another front, lithium’s supply has outpaced demand by a wide margin leaving lithium prices 70% higher year-to-date, having soared 430% in a year. This has jeopardized carmakers' attempts to make electric vehicles cost-competitive compared to their internal combustion engine counterparts. Industry experts predict that at the current lithium price level, buyers are expected to pay an additional USD$1,000 to purchase an electric vehicle in the United States. 

Chinese equities are again in rogue as the positive developments pushed them to outperform their peers in the Thematic and ESG universe for June 2022. 

Below is a breakdown of three offerings among the top-performing Thematic and ESG ETFs – we chose these three for having assets under management above USD$50 million. 

Mirae Asset TIGER China Electric Vehicle Solactive ETF (371460)

Mirae Asset TIGER China Electric Vehicle Solactive ETF (371460) led the top-performing Thematic ETFs posting 26.68% over the month of June. It is a passively managed fund introduced to the market on December 3rd, 2020. The fund trades in South Korean Won (KRW) on Korea Exchange under the ticker ‘371460’. It aims to replicate the Solactive China Electric Vehicle and Battery Index. The index invests in Chinese companies that are active in the field of electric vehicles and batteries related to electric vehicles with a regional allocation to mainland China and Hong Kong.

In contrast to its geographical concentration, the fund’s assets are diversified as the top 5 holdings – out of 30 securities – constitute 39.42% of its portfolio. This ETF belongs to the ‘Emerging Markets Future Mobility’ theme capturing the investment opportunity in the ‘Emerging Markets Awakening’ thematic trend. Mirae Asset TIGER China Electric Vehicle Solactive ETF is a good option for ESG enthusiasts looking to align their investments and values. It follows an ESG Thematic investing strategy while adopting the 9th Sustainable Development Goal ‘Industry, Innovation, and Infrastructure’. The fund currently manages USD$3.11 billion of assets under management while costing 0.54% per annum to own. It follows a distributing dividend policy when it distributes generated income, if any, to its shareholders. 

Global X China Electric Vehicle and Battery ETF (XHKG) 

Global X China Electric Vehicle and Battery ETF (XHKG) started trading on January 17th, 2020, on the Hong Kong Exchanges and Clearing Ltd. denominated in Hong Kong Dollar (HKD). It placed third on the top-performing list, having gained 24.98% for the month of June. XHKG is domiciled in Hong Kong and holds USD$859 million of assets under management. It is a passively managed fund seeking to provide investment results that closely correspond to the performance of the Solactive China Electric Vehicle and Battery Index. It invests in Chinese companies positioned to benefit from the increasing adoption of electric vehicles, including companies that produce them and components such as lithium batteries, equipment for battery production, and critical battery materials such as lithium and cobalt. XHKG's composition goes beyond the classic sector and industry classifications by tracking an emerging theme. Like Mirae Asset TIGER China Electric Vehicle Solactive ETF, XHKG captures the investment opportunity in the ‘Emerging Markets Future Mobility’ theme allowing exposure to the 9th Sustainable Development Goal ‘Industry, Innovation, and Infrastructure’ while following an ESG Thematic investing strategy. The fund has a higher concentration in the top 5 holdings, accounting for 46.98% of the total portfolio weight. XHKG is a bit more expensive, costing 0.68% per annum while adopting a dividend distributing model.

KraneShares MSCI China Clean Technology Index ETF (KGRN)

KraneShares MSCI China Clean Technology Index ETF (KGRN) was the fourth top-performing ETF in the thematic universe. This U.S.-based ETF managed to rise 15.12% over June while holding USD$159 million of assets under management. It was released on October 12th, 2017, into the market. KGRN seeks to replicate the performance of the MSCI China IMI Environment 10/40 Index, which measures the performance of large, mid, and small market cap Chinese companies deriving at least 50% of their revenues from environmentally beneficial products and services. The fund provides access to China’s fast-growing environmental protection industry, which has rapidly become the largest renewable energy market in the world. It belongs to the ‘Sustainable Resources Management’ theme with a geographical focus on China.

Moreover, it exposes investors to companies that stand to benefit from China’s increased focus and spending on clean energy technologies. KGRN follows an ESG Thematic investing strategy similar to Mirae Asset TIGER China Electric Vehicle Solactive ETF, which aligns with Sustainable Development Goal number 7, ‘Affordable and Clean Energy.’ The fund’s top 5 holdings add up to 44.34% of the total portfolio weight. KGRN is the most expensive of the three ETFs costing 0.78% per annum compared to 0.54% and 0.68%.   

Top 5 performing Thematic ETFs (1-month return – June):

1. Mirae Asset TIGER China Electric Vehicle Solactive ETF (371460): 26.68%
2. Global X China Electric Vehicle and Battery UCITS ETF (CAUT): 25.17%
3. Global X China Electric Vehicle and Battery ETF (XHKG): 24.98%
4. KraneShares MSCI China Clean Technology Index ETF (KGRN): 15.12%
5. KraneShares China Innovation ETF (KGRO): 12.68%

Data for this article is as of June 30th, 2022.