China A and Tariff Wars


Export leaders and season rotations from Pacer ETFs

Pennsylvania-based Pacer ETFs are listing two new smart beta ETFs that offer an interesting spin on equity allocations.

  • Pacer US Export Leaders ETF (PEXL)
  • Pacer CFRA-Stovall Equal Weight Seasonal Rotation Index ETF (SZNE)

SZNE will, as its name suggests, rotate its asset allocations throughout the year and invest in companies on an equally weighted basis. In April, the fund will focus on the Consumer Staples and Healthcare sectors. It will maintain this sector focus until the last business day of the following October, when it will swap over to Consumer Discretionary, Industrials, Information Technology, and Materials sectors. The index holdings will then swap back again in April. The prospectus provides a helpful table explaining things:


S&P 500 EWI Sector Rotation Schedule


January 1 – April 30 Rebalance May 1 – October 31 Rebalance November 1 – December 31
Consumer Discretionary Consumer Staples Consumer Discretionary
Industrials Industrials
Information Technology Healthcare Information Technology
Materials Materials



PEXL for its part may go down as one of the more poorly timed ETF listings and will invest in companies with the highest percentage of foreign sales and high free cash flow yield. The fund starts by taking the 200 companies in the Wilshire US Large-Cap and Wilshire US Mid-Cap Indexes that “have the highest annual foreign sales as a percentage of total sales,” the prospectus says.  The 200 companies are then narrowed to the 100 companies with the highest free cash flow yield. The 100 companies are equally weighted.


Analysis – unlucky timing

There’s a lot to say about a US export ETF. For one, the timing is pretty unlucky. With The Donald picking trade fights and retaliation on the way, it’s likely that US exporters will be among the biggest losers in the coming years. There is no way Pacer could have known exactly what was coming in their run-up to listing this ETF, however.


For two, the investment case for an export ETF is dubious without any trade war. Is there any evidence that companies that generate more sales from exports outperform those that generate less? Is there any evidence that export orientation is a source of alpha? Not that we’re aware. Which makes one wonder how this ETF will perform – even if there were no tariffs on their way.


Third, and more positively, the free cash flow criteria is clever and helpful. When times get rough free cash flow is one of the most important things a company can have, it ensures that they won’t go bankrupt, allows them to keep investing and allows them to keep building a business. If it weren’t for the hard-luck with the trade timing this might have been a great product.



HSBC lists China A shares inclusion ETF

HSBC is listing a China A shares inclusion ETF that will begin trading on the 27th of July. The HSBC MSCI China A Inclusion UCITS ETF (HMCT, HMCA) will physically track the MSCI China A Inclusion Index, while minimizing as far as possible the tracking error between the funds’ performance and the index. It will charge 0.60%.





Lyxor Core EURO STOXX 300 DR (MFDD)