An Introduction to the KraneShares E Fund China Commercial Paper ETF (NYSE:KCNY) Diversify your cash with KCNY

Transcription

1 An Introduction to the KraneShares E Fund China Commercial Paper ETF (NYSE:KCNY) Diversify your cash with KCNY Portfolio Management US Client Services Team David Zhang david.zhang@efunds.com.hk Aaron Dillon aaron.dillon@kraneshares.com Sabrina Wang wxc@efunds.com.cn Brendan Ahern brendan.ahern@kraneshares.com

2 The KraneShares E Fund China Commercial Paper ETF (NYSE: KCNY) is an exchange traded fund investing into China commercial paper a money market security. We believe China commercial paper delivers superior yield & similar stability vs. US money market funds and US bank deposit programs. See slides 4 and 7 for more information. Investment Strategy The KraneShares E Fund China Commercial Paper ETF (NYSE: KCNY) seeks to track the CSI Diversified High Grade Commercial Paper Unhedged Index. The Fund seeks to deliver a diversified basket of investment-grade 1 commercial paper denominated in on-shore renminbi issued by sovereign, quasisovereign and corporate issuers in the People s Republic of China and traded in the inter-bank bond market. Commercial paper in the Fund is investmentgrade and has a remaining term to final maturity of no more than one year and no less than one month. China commercial paper may be appropriate for customers who have a(n) allocation to investment products that only invest in money market securities investment goal with a short time horizon low tolerance for volatility daily liquidity requirement desire to diversify their cash-equivalent holdings The KraneShares E Fund China Commercial Paper ETF is not a money market fund. 1.) For purposes of the Underlying Index, investment grade commercial paper is commercial paper that is issued by an issuer whose long-term bonds are rated AAA or equivalent by one or more Chinese credit rating agencies; or commercial paper that is issued by an issuer whose long-term bonds are rated AA+ or equivalent by one or more Chinese credit rating agencies and commercial paper is rated A-1 or equivalent by one or more Chinese credit rating agencies 2

3 KraneShares believes that there are many similarities between the KraneShares E Fund China Commercial Paper ETF (NYSE:KCNY), US money market funds and US bank deposit programs KCNY Money Market Funds Bank Deposit Programs KCNY only invests in Chinese commercial paper a money market security, and attempts to preserve principal investment while providing attractive monthly distributions The average maturity for the fund is less than five months (128 days) Only invests into commercial paper that has received an investment grade credit rating KraneShares believes that KCNY may be an appropriate cashalternative for all types of investors Money market funds only invest into money market securities and are considered to be a cash equivalent by many investors Average maturity for money market funds is two months or less Money market funds must invest in securities with the highest credit quality according to SEC rule 2a-7 Many brokerage firms offer money market funds as as a cash sweep option Bank deposit programs are used by brokerage firms as a cash sweep option These Programs are FDIC insured and generally deliver yields similar to money market funds Since bank deposit programs are "invested" in cash, weighted average maturity and credit quality are not applicable The KraneShares E Fund China Commercial Paper ETF is not a money market fund. 3

4 Potential benefits of investing in China commercial paper 1 Yield: China commercial paper has outperformed US commercial paper and USD bank deposits over the past year 8.00% 6.00% 4.00% 2.00% 0.00% 5.85% ChinaBond Commercial Paper Index TR (USD) Trailing 12 months total return as of 9/2014 Source: Bloomberg as of 9/30/ % 0.16% S&P US Commercial Paper Index TR USD Deposit Rates (1M term, retail) Definitions: ChinaBond Commercial Paper Index Total Return: Represents commercial paper and super & shortterm commercial paper trading in RMB on the interbank bond market. S&P US Commercial Paper Index Total Return: consists of commercial paper with one to three month maturities from both the financial and nonfinancial sectors. USD Deposit Rates (1M term, retail): Interest rate received for deposits into a FDIC insured bank account with 1 month lock-up. The Fund was incepted on 12/02/2014 and does not have historical performance yet. Index performance is for illustrative purposes only and is not intended to serve as a proxy for the Fund's future performance. 4

5 Potential benefits of investing in China commercial paper: 2 Historical Stability: China commercial paper has produced minimal downside deviation 1 since 10/31/ ,000 14,000 13,000 12,000 Growth of $10,000 (10/31/2008 to 9/30/2014) ChinaBond Commercial Paper Index TR (USD) S&P US Commercial Paper Index TR USD Deposit Rates (1M term, retail) 11,000 10,000 9,000 START 10/31/09 10/31/10 10/31/11 10/31/12 10/31/13 1.) Downside Deviation: A measure of downside risk that focuses on returns that fall below zero threshold or minimum acceptable return (MAR). 2.) The ChinaBond Commercial Paper Index Total Return was incepted on 10/31/2008 The Fund was incepted on 12/02/2014 and does not have historical performance yet. Index performance is for Source: Bloomberg as of 9/30/2014 illustrative purposes only and is not intended to serve as a proxy for the Fund's future performance. 5

6 ChinaBond Commercial Paper Index TR (USD) Trailing 60 Month Total Return 10/31/ /31/2014 China commercial paper has delivered positive annual returns over 5.80% since 2010 and we believe that China commercial paper is on track to deliver a 4.50% return in % of monthly total returns are positive over the past 60 months. Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total % -0.68% -0.82% -0.05% 0.69% 1.16% 0.95% 0.94% 0.52% 3.39% % 0.30% 0.51% 1.07% 0.86% -0.25% 0.69% 0.51% 0.37% 0.74% 0.18% 1.14% 7.19% % 0.66% 0.44% 0.70% -0.68% 0.49% 0.15% 0.37% 1.29% 1.18% 0.45% 0.24% 5.87% % 0.69% 0.78% 1.24% 0.51% 0.30% 0.45% 1.33% 0.38% 1.00% 0.20% 1.70% 9.13% % 0.25% 0.31% 0.20% 0.13% 0.76% 0.46% -0.28% 1.93% 0.46% 0.13% 1.28% 6.11% % 0.21% 0.23% --- Source: Bloomberg October 31, 2014 Index returns are for illustrative purposes only and do not represent fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest in an index. Past performance does not guarantee future results. 6

7 China Commercial Paper Historical Total Return vs. US Commercial Paper & USD Deposit Rates (as of 10/31/2014) ChinaBond Commercial Paper Index Total Return (USD) S&P US Commercial Paper Index Total Return USD Deposit Rates (1M term, Retail) +/- S&P US Commercial Paper Index Total Return +/- USD Deposit Rates (1M term, Retail) 3M 6M YTD 1YR 3YR 5YR Since Inception (ChinaBond Commercial Paper Index TR) 10/31/ % 5.42% 4.47% 5.85% 20.82% 37.79% 42.66% 0.05% 0.10% 0.16% 0.20% 0.85% 1.46% 2.76% 0.04% 0.08% 0.13% 0.16% 0.54% 0.97% 1.38% 2.48% 5.32% 4.31% 5.65% 19.97% 36.34% 39.90% 2.48% 5.34% 4.34% 5.69% 20.28% 36.83% 41.27% Source: Bloomberg October 31, 2014 Index returns are for illustrative purposes only and do not represent fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest in an index. Past performance does not guarantee future results. 7

8 China and US Yield Curve as of 9/30/2014 China s yield curve is very flat China sovereign debt delivers 350bps+ spread vs US sovereign debt for maturities under one year as of 9/30/ Best risk/ reward potential opportunity 3m spread = 3.38% CNY China Sovereign (Interbank) Curve US Treasury M 6M 1Y 2Y 3Y 5Y 7Y 10Y 30Y Source: Bloomberg September 30,

9 An Introduction to E Fund Asset Management Portfolio Manager Bios: Established in 2001, E Fund Management Co., Limited ( E Fund ) is the 3rd largest mutual fund manager in China based on total assets under management (AUM), with over RMB 300 billion (USD $50 billion) with offices in Beijing, Guangzhou, Shanghai and Hong Kong. E Fund is a full service asset manager offering 57 mutual funds. Our mutual fund clients include sovereign wealth funds and non- Chinese investors accessing the onshore market through the Qualified Foreign Institutional Investor program. E Fund is also one of the largest fixed income managers with a 46 person team and $33 billion AUM. Global compliance standard: E Fund HK is a Registered Investment Advisor with SEC; SFC type 4 & 9 license in Hong Kong. One of the largest Reminbi QFII managers in the world: as of 30 Jun 2014, E Fund HK is entrusted with over RMB 16 billion (around USD $2.6 billion) in assets. Clients include top European bank, US family offices, investment banks, public corporations, insurance companies, pension funds, hedge funds and fund of funds. David Zhang Mr. Zhang is a co-manager for the the Fund. Mr. Zhang is currently a fund manager and is the CIO and Deputy CEO of E Fund Asset Management (HK). Mr. Zhang has managed fund portfolios for 8 years. He holds a Masters in Financial Engineering from UC Berkeley. Sabrina Wang Ms. Wang is currently a fund manager and Head of the Fixed Income Department Mutual Fund Center at E Fund. Ms. Wang has worked at E Fund since She holds a master s degree in Financial Engineering from Renmin University of China and received her B.S. degree in Finance from Shanghai Fudan University. Source: E Fund Company Data as of 9/30/2014 9

10 Thank You For Watching. For further information please call: KRANE8 ( ) Or China commercial paper may be appropriate for customers who have a(n) allocation to investment products that only invest in money market securities investment goal with a short time horizon low tolerance for volatility daily liquidity requirement desire to diversify their cash-equivalent holdings

11 Carefully consider the Funds' investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Funds' prospectus, which may be obtained by visiting Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. There can be no assurance that a Fund will achieve its stated objectives. The Funds focus their investments primarily with Chinese issuers and issuers with economic ties to China. The Funds are subject to political, social or economic instability within China which may cause a decline in value. Fluctuations in currency of foreign countries may have an adverse effect on domestic currency values. Emerging markets involve heightened risk related to the same factors as well as increased volatility and lower trading volume. Current and future holdings are subject to risk. The KraneShares E Fund China Commercial Paper ETF is subject to interest rate risk, which is the chance that bonds will decline in value as interest rates rise. It is also subject to income risk, call risk, credit risk, and Chinese credit rating risks. The components of the securities held by the Fund will be rated by Chinese credit rating agencies, which may use different criteria and methodology than U.S. entities or international credit rating agencies. The Fund may invest in high yield and unrated securities, whose prices are generally more sensitive to adverse economic changes. As such, their prices may be more volatile. The Fund is subject to industry concentration risk and is nondiversified. The KraneShares E Fund China Commercial paper ETF invests in sovereign and quasi-sovereign debt. Investments in sovereign and quasi-sovereign debt securities involve special risks, including the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, and the government debtor s policy towards the International Monetary Fund and the political constraints to which a government debtor may be subject. In order to qualify for the favorable tax treatment generally available to regulated investment companies, the Fund must satisfy certain income and asset diversification requirements each year. If the Fund were to fail to qualify as a regulated investment company, it would be taxed in the same manner as an ordinary corporation, and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. Narrowly focused investments typically exhibit higher volatility. Internet companies are subject to rapid changes in technology, worldwide competition, rapid obsolescence of products and services, loss of patent protections, evolving industry standards and frequent new product productions. Such changes may have an adverse impact on performance. The KraneShares ETFs are distributed by SEI Investments Distribution Company, which is not affiliated with Krane Funds Advisors, LLC, the Investment Adviser for the Fund. 11