Known For China, KraneShares Gets Into US Stocks With New Dividend ETFs

KraneShares, the exchange traded funds issuer primarily known for its suite of China and emerging markets products, including the popular KraneShares CSI China Internet ETF KWEB, is adding some domestic geographic diversity to its lineup with two new U.S. dividend funds.

What Happened

On Wednesday, New York-based KraneShares introduced the KFA Small Cap Quality Dividend Index ETF KCSD and the KFA Large Cap Quality Dividend Index ETF KLCD.

The large-cap KLCD tracks the Russell 1000 Dividend Select Equal Weight Index. That benchmark “is designed to provide a benchmark for investors looking to capture a concentrated portfolio of constituents demonstrating increased dividends and positive momentum,” according to KraneShares' KFA Funds unit.

KLCD and KCSD are the first domestic equity ETFs from KraneShares. The firm offers 11 other equity-based ETFs that are dedicated to Chinese or emerging markets stocks.

Why It's Important

Components in the large-cap KLCD are required to have boosted dividends for 10 consecutive years. Members of the index are equally weighted. At the end of May, the industrial and financial services sectors combined for over 47% of the index's weight, according to index provider FTSE Russell. The consumer staples, discretionary and utilities sectors combine for about 35% of the benchmark's roster.

The KFA Small Cap Quality Dividend Index ETF tracks the Russell 2000 Dividend Select Equal Weight Index, a different growth derivative of the widely followed Russell 2000 Index. Like the large-cap KLCD, the small-cap KCSD has a dividend growth requirement of 10 years.

KCSD aims to provide exposure “to firms with historically reliable dividend growth which have a strong record of stable cash flows, healthy balance sheets and durable business models,” according to KraneShares.

KCSD's underlying index devotes over 48% of its weight to the financial services and utilities sectors. The industrial and consumer staples groups combine for almost 27%.

What's Next

KLCD and KCSD enter some crowded arenas, but there has been increasing interest in small-cap dividend growth strategies and that field of ETFs is significantly smaller than the comparable large-cap space, indicating the new KCSD could eventually gain traction with investors.

KLCD charges 0.41% per year, or $41 on a $10,000 investment, while the small-cap KCSD has an annual fee of 0.51%.

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