China’s pharma and healthcare market has registered explosive growth, presenting many exciting opportunities for global investors. This is on the back of Beijing’s undergoing efforts through multiple reforms, in areas of healthcare expenditure as well as the regulatory environment for investment. Besides that, China is also upgrading the country’s healthcare ecosystem with more modernisation and research push.
Over the past few years, the Chinese pharmaceutical and healthcare industry, which spreads across both public and private medical institutions and insurance programs, has grown rapidly. It has only begun privatizing in the 1990s, but is the world’s second-largest pharmaceutical market today. According to the Chinese National Health and Family Planning Commission, the country’s health care industry is projected to be worth $2.4 trillion by 2030.
How to participate in China’s healthcare wave?
The expansion of the Chinese healthcare market also provides an increased number of investment possibilities with the asset management industry starting to launch some dedicated China healthcare funds.
In this article, we are taking a look at two Exchange Traded Funds (ETFs) from Global X and KraneShares and one mutual fund by Invesco.
Global X MSCI China Health Care ETF
The Global X MSCI China Health Care ETF (ISIN US37954Y5419), incepted on 12 July 2018, invests in large and mid-capitalization segments of the MSCI China Index that are classified in the healthcare sector as per the Global Industry Classification System (GICS).
The ETF has net assets of $16.20 m*. The ETF comprises 91 holdings in total, out of which the top 15 holdings constitute over 61.49% weightage. The non-diversified fund invests at least 80% of its total assets in the securities of the underlying index (MSCI China Health Care 10/50 Index) and in ADRs and GDRs, based on the underlying index.
With a running cost of 0.65% p.a., the ETF by Global X, a subsidiary of Mirae Asset Global Investments, seeks to provide investment results that correspond generally to the price and yield performance of the MSCI China Health Care 10/50 Index.
The underlying index incorporates all eligible securities as per MSCI’s global investable market index methodology, including China A, B and H shares, Red chips, P chips and foreign listings, among others. The market price of the Global X MSCI China Health Care ETF has risen 12.18% in the last one year period, while the index has risen 13.75% in the same period.**
KraneShares MSCI All China Health Care Index UCITS ETF
Launched in January of 2021, the MSCI All China Health Care Index UCITS ETF (ISIN IE00BL6K0S82) by KraneShares has a fund size of $6.56 m*. The ETF fully replicates the performance of the underlying index.
The MSCI China All Shares Health Care 10/40 index tracks large and mid-cap companies out of China and Hong Kong, with a focus on the healthcare and related sectors. The index tracks the performance of companies with large and mid-cap representation across China A‐shares, B‐shares, H‐shares, Red‐chips, P‐ chips and foreign listings. The 10/40 concentration rule limits the weight of each entity to 10% of the index. Meanwhile, the sum of all companies with a weight in excess of 5% does not exceed 40% of the Index by weight.
The KraneShares MSCI All China Health Care Index UCITS ETF comprises 93 holdings in total, out of which the top 10 constitute over 46% weightage. The total expense ratio (TER) of the accumulating ETF is at 0.65% p.a.
Invesco China Health Care Equity Fund A USD Acc
Still rare, but recently a mutual fund focusing on China’s healthcare sector has also entered the market. In December 2020, Invesco launched the Invesco China Health Care Equity Fund. It has a fund volume of $301,02m.** The benchmark index is the MSCI China A Onshore Health Care index.
Managed by Hong Kong-based Chris Liu since 15 December 2020, it is a high conviction portfolio with 27 holdings.** Liu follows a bottom-up stock selection approach focused on Chinese healthcare companies with longterm growth potential based on industry leadership and competitive advantages, clear business strategies and transparent corporate governance.
The strategy not only invests in large-cap market leaders but also small- and mid- cap companies, which have unique competitive advantages in different subsectors. The fund has higher exposure to contract development and manufacturing organization (CRO/CDMO) and medical devices, as well as selected exposure to pharmaceutical companies with strong pipelines of innovative drugs.
The biggest holding is the Chinese biologics technology platform Wuxi Biologics (8.9%). Besides Wuxi Biologics, other top 5 holdings of the fund include medical laboratory company Hangzhou Tigermed Consulting (8.5%), medical device company Shenzhen Mindray Bio-Medical Electronics (8.0%), pharmaceutical firm Asymchem Laboratories Tianjin (7.1%) and pharmaceutical company WuXi AppTec (7.1%).**
The Invesco China Health Care Equity Fund has an ongoing charge of 2%. Minimum investment is $1,500.
*As of 1 November 2021
**As of 30 September 2021