• Video
  • Roundhill Investments CEO on China Dragons ETF (DRAG)

Roundhill Investments CEO on China Dragons ETF (DRAG)

Show Transcript
Bloomberg Oct 7 20:15 · 10.1k Views

Roundhill Investments CEO Dave Mazza discusses the Roundhill China Dragons ETF (DRAG) and says the idea behind it is to capture the same type of companies the Magnificent Seven represents in the US, but for the Chinese equity market.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more

Transcript

  • 00:00 Dave Drag offers
  • 00:01 focused exposure to China's big tech companies.
  • 00:04 We're talking anywhere from 5:00 to 10:00.
  • 00:06 Names.
  • 00:07 It's like the Chinese version of the Mag 7.
  • 00:09 What's the criteria for companies to make it into this fund?
  • 00:13 Yeah, No, you're absolutely right.
  • 00:14 So the idea behind the Round Hill China Dragons ETF is to capture
  • 00:18 the same zeitgeist and type of companies that the Magnificent 7 represent in the US,
  • 00:23 but for the Chinese equity market.
  • 00:25 And so we're really looking for the largest companies, the most liquid companies,
  • 00:29 but not just that.
  • 00:30 Those are at the forefront of innovation that are growing their revenue, that are really
  • 00:34 driving what the future will look like
  • 00:37 in today's world.
  • 00:38 And so that's why
  • 00:39 what we have today in the portfolio is 9 stocks.
  • 00:42 So names like
  • 00:44 PDD Holdings, Alibaba met one that are representing what's exactly exciting about the Chinese economy today.
  • 00:51 I end in the future.
  • 00:53 Now,
  • 00:53 China has had a lot of, you know, bad news over the past couple years.
  • 00:59 It seems like, like when I gather from talking to people
  • 01:02 that a lot of people don't buy this rally.
  • 01:04 I know it's QE induced and that's generally good,
  • 01:07 but it seems more like a sugar high
  • 01:09 than the real deal.
  • 01:10 What do you say to somebody who comes back with you with that?
  • 01:13 Well, look, it's a valid point.
  • 01:15 We've seen
  • 01:15 fits and starts over the years of the Chinese equity market recovery.
  • 01:19 Most recently there was one in February that ended up going nowhere.
  • 01:23 What's different this time around though, and I know those are dangerous words and finance
  • 01:27 is the size of this bazooka
  • 01:29 that's being fired by the the PBOC.
  • 01:32 They are doing, they're identifying the issues that exist within the Chinese economy, particularly in the banking and financial structure sector and trying to address those.
  • 01:40 In addition, tomorrow,
  • 01:43 so
  • 01:43 Tuesday, October 8th,
  • 01:44 there is a potential for more stimulus, a further announcement made
  • 01:49 by the Chinese authorities that are that could be focusing on some of the other issues that exist with China, particularly on the fiscal and structural side.
  • 01:56 So
  • 01:57 I would say we finally have the bazooka sized stimulus that some folks have been looking for
  • 02:02 coupled with very, very inexpensive valuations that makes it hard to ignore China, second largest economy in the world and the second largest equity market.
  • 02:12 And Dave,
  • 02:13 you know, our,
  • 02:13 my colleague Rebecca Sin has been covering this
  • 02:16 from, you know, for months.
  • 02:17 The Chinese national team has poured $90 billion
  • 02:21 and guess what they bought to stimulate the market?
  • 02:24 ETFs.
  • 02:25 Yes, I know,
  • 02:27 shocker, right?
  • 02:27 Well, just like the Fed did, the Fed bought bond ETFs,
  • 02:30 China's buying equity ETFs.
  • 02:32 How much difference does that make and how
  • 02:35 pointed are they being in which ETF they buy?
  • 02:39 Well, I think
  • 02:39 you're absolutely right.
  • 02:40 So they're following a playbook that we saw used by the the Federal Reserve most recently during the COVID.
  • 02:46 Buying bond ETS.
  • 02:48 And at this point from what the reports that we're seeing is that they're looking to identify broad based exposure.
  • 02:53 Part of the
  • 02:54 stimulus measures
  • 02:56 is actually a facility that financial institutions can use
  • 03:00 to buy stocks and bonds.
  • 03:01 And included in that is ETS.
  • 03:03 So there is this large bid in the market.
  • 03:06 There's also been reports, and we've seen it on social media,
  • 03:09 folks lined up to open brokerage accounts
  • 03:12 that
  • 03:13 the local Chinese equity market has been closed for a week,
  • 03:17 opening tomorrow.
  • 03:18 And there's actually, I think, potential for even more
  • 03:22 opportunities to come because again,
  • 03:24 of the inexpensive valuations and especially for the China Dragon names,
  • 03:28 actually positive sales growth, earnings growth and net income growth.
  • 03:31 Yeah, it's fascinating.
  • 03:32 Of course,
  • 03:33 another stamp of approval for the ETF rapper, this time
  • 03:36 coming from China.
  • 03:38 Coming back to drag, though, it's interesting.
  • 03:40 You take a look at the construction.
  • 03:41 This is an equal weighted basket, Dave.
  • 03:43 Why go with equal weight versus market weight, for example?
  • 03:47 Well, one of the interesting things is what when you're taking a more concentrated position, a more targeted position like we've seen with the Magnificent 7, our MAGS ETF in the US,
  • 03:56 it actually can be beneficial to have that equal weighting.
  • 03:59 So it forces
  • 04:00 this precision, this precision in the portfolio
  • 04:03 actually to to sell winners and buy the losers
  • 04:07 on a quarterly basis.
  • 04:08 So we applied that same methodology here to drag.
  • 04:11 So we
  • 04:12 gained that exposure to what we've identified today as the 9 China Dragons, but ensure that we are not having one of them Dr.
  • 04:19 outsized returns both positively or negatively in the portfolio.
  • 04:24 Let me just correct a mistake I made earlier, which is that drag actually launched last week.
  • 04:29 But your timing, Dave, is impeccable because in the week leading up to National Day and Golden Week, as Katie mentioned, the government unfurled all these stimulus measures, fiscal, monetary.
  • 04:39 And you're saying that there's more to come as well.
  • 04:42 When did this process of coming up with this China Focus ETF
  • 04:46 begin?
  • 04:47 And how long did it take to really dot all the
  • 04:50 IS and cross all the T's?
  • 04:52 So we actually first filed for this ETF back in May and the impetus there was that we
  • 04:56 saw of the investor interest that we have in our Magnificent 70.
  • 05:00 ETF, which is over $750 million
  • 05:03 that was launched
  • 05:05 just
  • 05:06 in
  • 05:06 recent past.
  • 05:08 And what's interesting is that we said, hey, if we take a look at the equity markets, there's a lot of similarities between the Chinese equity market and the US equity market.
  • 05:17 And we saw a product gap
  • 05:19 that was missing for precise exposure
  • 05:21 for Chinese equities.
  • 05:23 Of course, we could not predict that our launch date would coincide with some of the largest stimulus package
  • 05:30 ever announced
  • 05:31 in in the Chinese economy, let alone
  • 05:33 any economy around the globe.
  • 05:34 So there's some luck with all that.
  • 05:37 But really, the process to do so had nothing to do
  • 05:40 with the stimulus that was recently announced.