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Alibaba Beats on Earnings, Lowers Guidance: ETFs in Focus

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Chinese e-commerce giant Alibaba Group (BABA - Free Report) reported second-quarter fiscal 2019 results before the opening bell on Nov 2, wherein it beat earnings expectations but lagged on revenues.

Earnings of $1.01 per ADS came in 19 cents above the Zacks Consensus Estimate. Revenues jumped 54% year over year to $12.34 billion and fell short of the estimate of $12.65 billion. The robust revenue growth was credited to a booming core e-commerce business, fast-growing cloud computing services and strong media and entertainment growth. Core e-commerce revenues grew 56% year over year, cloud computing revenues soared 90%, and digital media and entertainment revenues increased 24%.

Alibaba had another strong quarter of rapid growth as annual active consumers increased 25 million from the last quarter to reach 601 million in the 12 months ended Sep 30, 2018. Mobile monthly active users in its China retail marketplaces increased 32 million quarter over quarter to 666 million (see: all the Technology ETFs here).

Chinese e-commerce giant reduced its fiscal-year revenue forecast by 4-6%, citing growing doubts about the economy as China’s expansion recently slowed to its weakest pace in nearly a decade as well as concerns about the economic fallout from the U.S.-China trade war. The company will hold off on monetizing potential new revenue streams, such as charging merchants for recommendation fees on its redesigned Taobao interface, until economic conditions improve.

Market Impact

Following the mixed results, BABA shares dropped 2.4% on the day. The stock has been hit badly in recent months due to tensions from an ongoing trade war with the United States and regulations. Alibaba currently has a Zacks Rank #3 (Hold) and a VGM Score of D. It belongs to the bottom-ranked Zacks industry (bottom 40%).

Given this, ETFs having the highest allocation to the Chinese e-commerce giant is in focus for the days ahead. Below, we have highlighted six ETFs in detail:

Invesco BLDRS Emerging Markets 50 ADR Index Fund (ADRE - Free Report)
 
The product offers exposure to the 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 41.5% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 16.6%. Brazil, Taiwan and India round off the next three spots in terms of country exposure. Consumer discretionary, financials, communication services, information technology and energy are the top five sectors. ADRE has amassed $130.9 million in its asset base while trading in light volume of about 12,000 shares. It charges 18 bps in fees per year and lost 0.4% on the day. ADRE has a Zacks ETF Rank #3 with a Medium risk outlook (read: Emerging Markets Dip for 4th Successive Weak: ETFs in Focus).

Invesco BLDRS Asia 50 ADR Index Fund (ADRA - Free Report)

This ETF follows the capitalization-weighted BNY Mellon Asia 50 ADR Index and tracks the performance of approximately 50 Asian market-based DRs. Chinese firms make up for the largest share at 34%, with Alibaba at the top position with 12.5% allocation. Japanese firms account for 31.8% of the assets. ADRA is often overlooked by investors as depicted by its AUM of $18 million and average daily volume of about 1,000 shares. It charges 30 bps in annual fees and added 1.2% on the day post BABA results. The fund has a Zacks ETF Rank #3 with a Medium risk outlook.

SPDR S&P China ETF (GXC - Free Report)

This product follows the S&P China BMI Index, charging investors 59 bps in annual points. It holds 367 stocks in its basket with Alibaba taking the second spot at 12.1%. From a sector look, financials and consumer discretionary take the largest share at 22.9% and 21.6%, respectively, while information technology and communication services round off the next two spots. The ETF has amassed $964 million in its asset base and sees average daily volume of 66,000 shares. It added 0.1% following Alibaba results and has a Zacks ETF Rank #3 with a Medium risk outlook (read: China Manufacturing More Than 2-Year Low: ETFs in Focus).

iShares MSCI China ETF (MCHI - Free Report)

This ETF follows the MSCI China Index, holding 293 securities in its basket. Of these, Alibaba takes the second spot with 11.9% share. From a sector look, about 26.2% of the portfolio is allotted to communication while financials (23.4%) and consumer discretionary (20.5%) round off the next two spots. The fund has amassed $3.7 billion in its asset base, while charging 62 bps in annual fees. Volume is also solid as it exchanges nearly 4.5 million shares on average daily basis. The ETF gained 0.2% following the results and has a Zacks ETF Rank #3 with a Medium risk outlook.

Invesco China Technology ETF (CQQQ - Free Report)

This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index. Holding 74 stocks, Alibaba occupies the second position in the basket with 9.8% share. The product manages an asset base of $443.7 million while trading in good volume of around 167,000 shares a day. Expense ratio comes in at 0.70%. CQQQ dropped 0.4% on the day, following Alibaba’s results and carries a Zacks ETF Rank #3 with a High risk outlook.

KraneShares CSI China Internet Fund (KWEB - Free Report)

This product provides concentrated exposure to China’s Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 48 securities in its basket with Alibaba occupying the second spot at 8.9%. The communications sector makes up for a substantial 52% of the total assets, while consumer discretionary takes 26% share. The ETF has AUM of $1.6 billion and charges 70 bps in annual fees from investors. Volume is solid as it exchanges around 1.3 million shares in hand per day. KWEB was down 1% in the last trading session, following Alibaba’s earnings announcement, and currently has a Zacks ETF Rank #3 with a High risk outlook.

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