After months of speculation, Chinese e-commerce giant Alibaba Group finally decided to go public on a U.S. exchange rather than in Hong Kong and plans to file an IPO next month.
Alibaba is expected to raise $15 billion through its IPO, which could value the company at more than $130 billion, according to the New York Times. The offering would be the second largest in history behind Facebook’s $16 billion offering in May 2012. The company is expected to list on a U.S. stock exchange in the third quarter (read: China ETFs Slump on Terrible Export Numbers).
Alibaba is one of the world’s biggest Internet companies that provide marketplace platforms similar to eBay Inc. (EBAY - Analyst Report) , PayPal Inc. and Google Inc. , allowing merchants to sell goods directly to consumers. Notably, the company occupies 80% of the Internet e-commerce market in China.
The online giant swung to a profit of $792 million in the third quarter from a net loss of $246 million in the year-ago quarter. Though revenue growth slowed from 61% in the second quarter to 51% in the third, it still outpaced many of its major rivals such as the 34% revenue growth at Tencet Holdings (TCEHY), 24% growth at Amazon.com (AMZN - Analyst Report) and 12% growth at Google.
The public launch would likely benefit from China’s booming Internet market and would boost the company’s global presence as well. Additionally, the IPO will be a boon for Yahoo Inc. (YHOO - Analyst Report) , which owns a 24% stake in this Chinese Internet giant (read: Guide to China Technology ETFs).
Though the company has not yet revealed whether it will trade on the New York Stock Exchange or Nasdaq, the following ETFs might be in focus in the coming days ahead of the IPO and see busy trading. Also, these ETFs are considered safe bets for investors seeking to avoid single stock risk while participating in the potential upside offered by the new e-commerce giant’s going public act.
KraneShares CSI China Internet Fund ((KWEB - ETF report) )
This ETF is newly debuted in the China ETF space, having amassed an impressive $75 million in AUM in just eight months. It provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index (read: China Internet ETF: The Best Choice in the Space?).
Holding 28 stocks, the product allocates a combined 22.4% of assets to TCEHY, QIHO 360 Technology (QIHU) and Baidu.com (BIDU). Alibaba is expected to find its entry into the fund’s roster within 11 days of the company’s IPO.
The fund is slightly expensive, charging 68 bps in fees per year. Additionally, it trades in a moderate volume of over 53,000 shares a day, ensuring extra cost in the form of bid/ask spread. KWEB gained over 13% so far this year.
PowerShares Golden Dragon China Portfolio ((PGJ - ETF report) )
This fund might also add Alibaba to its portfolio as it looks to track the performance of the U.S. listed companies that derive the majority of revenues from China. It follows the Nasdaq Golden Dragon China Index and holds 71 stocks in its basket. The product has amassed $3187.7 million in its asset base and sees moderate average daily volume of nearly 158,000 shares. Expense ratio came in at 0.70%.
More than half of the portfolio is allocated to information technology, followed by consumer discretionary (22.18%). Other sectors receive minor allocations in the portfolio. The top three holdings include QIHU, Ctrip.com International (CTRP) and BIDU.
The product added nearly 3.6% in the year-to-date timeframe and has a Zacks Rank of 3 or ’Hold’ rating.
Renaissance IPO ETF ((IPO - ETF report) )
This fund provides an exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis’ on the fifth day of trading. The fund holds 61 stocks and has attracted $25.4 million in AUM since its debut five months back.
Currently, FB and Zoetis (ZTS) are the top two firms making up for nearly 10% share each. From a sector look, technology stocks make up for more than one-fourth of the basket while financials, oil & gas and healthcare take the next three spots.
The ETF trades in light volumes of less than 44,000 shares, probably ensuring additional cost beyond the expense ratio of 0.60%. Renaissance IPO is up nearly 6% in the year-to-date time frame (read: Can IPO ETFs Remain Hot in 2014?).
SPDR S&P Emerging Market ETF ((GMM - ETF report) )
This fund targets the broad emerging market space by tracking the S&P Emerging BMI Index, which looks to invest in American depositary receipts of Chinese companies. GMM could be at the forefront to add Alibaba to its portfolio if the latter goes public (see: all the Broad Emerging Market ETFs here).
Holding 938 stocks in its basket, the product is widely spread out across each security as none holds a more than 2.6% share. Chinese firms dominate the fund’s portfolio at nearly 23%, closely followed by Taiwan (15.12%) and Brazil (10.83%). From a sector look, financials takes the top spot with a one-fourth share while information technology and energy round off the next two spots with double-digit exposure.
The fund has accumulated $186.7 million and charges 59 bps in annual fees and expenses. Volume is light as it trades in less than 33,000 shares a day on average. The ETF lost 6.5% in the year-to-date timeframe and has a Zacks Rank of 3 or ’Hold’ rating.
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