The team at an 11-year-old fund firm in Gotham is rolling out a passively managed, China-focused ETF that tracks an AI-powered index.

Jonathan Krane KraneShares Founder, CEO

Late last month, Brendan Ahern, chief investment officer of Krane Funds Advisors, LLC, (dba KraneShares [profile]), and Mahmood Noorani, CEO of Quant Insight Ltd., unveiled the launch of the KraneShares China Alpha Index ETF (KCAI on the NYSE Arca). Krane will serve as the new fund's investment advisor, and Quant is the index provider.

KCAI's inception date was August 28, and as of yesterday (September 12), it had $7.1 million in AUM. The new ETF comes with an expense ratio of 79 basis points and is a series of KraneShares Trust.

The new fund is designed to track the Qi China Alpha Index, and that index in turn is powered by what the Krane team calls "a systematic machine learning approach" that uses "an alpha optimization filtering process" in an effort to outperform the CSI 300 Index. James Maund, head of capital markets at Krane, is KCAI's lead portfolio manager, and chief operating officer Jonathan Shelon is also a PM.

Ahern puts the launch of KCAI in the context of active asset managers' challenges in trying "to produce consistent alpha in the China A-share market in recent years."

"We believe KCAI's AI-driven approach has the potential to outperform the broad market consistently and its rules-based strategy could be used as a source of portable alpha for global investors," Ahern states.

Noorani says the Quant team sees "inefficiencies and volatility" in the A-Share market in China.

"It is also dominated by retail investors," Noorani states. "This creates significant market 'noise' — an opportunity our AI-powered machine learning algorithm is uniquely positioned to exploit."

KCAI's other service providers include: Brown Brothers Harriman (BBHK&L Gates LLP as counsel; KPMG LLP as independent accounting firm; SEI Investments Distribution Co. as distributor; SEI Investments Global Funds Services as administrator; and Solactive AG as index calculation agent. 

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