CoreValues Alpha’s Ben Harburg manages the actively managed CVA Greater China Growth ETF (CGRO), an ETF based on his and his team’s deep knowledge of the Chinese market.
Harburg first visited China in 2004 as an intern and then returned in 2008 when he launched a commodities trading company that became a multi-million-dollar annual turnover business, in the top 10 of firms trading coal, chrome manganese and iron ore with China.
During this period, Harburg watched Chinese firms such as Alibaba and Tencent achieve extraordinary growth so started a venture fund in China in 2015 which has raised some USD2 billion in capital.
His fund invests in some 150 portfolio companies in China. “We invest in some early stage firms, getting in at the ground floor and we have some larger businesses ready for IPOs,” Harburg says.
“We have a deep understanding of the market dynamics of China with 40 people on the ground reading the tea leaves and sometimes we know years ahead what is going on so we can navigate the bumps and put our money into sectors where there is a lot of government slipstream.”
The firm has also started setting up similar levels of local knowledge in other geographies in the US and the Middle East.
“Come 2023 we identified that the Chinese public market was massively mispriced and so the fundamentals made no sense,” Harburg says. “We also posited that China had gone through a crash that had affected private and public markets and we predicted that the public markets would recover more quickly, which led us to believe that the opportunity was in the public markets, so we set up a public strategy.”
Harburg says that an ETF was compelling because he likes the public nature of the ETF structure. “We are not a hedge fund and so we can use our ETF as a public vehicle and platform to express our views on China in real time, on a minute-by-minute basis.”
The ETF came in 2023 and suffered, Harburg says, from a touch of overthinking by the management team.
“We overthought it as one of the reasons was that although we identified China for our fund, the biggest competitors were passively traded and our view is that it has to be actively traded. We have been updating our portfolio every day this week.”
Harburg notes that active ETFs, without a benchmark, have become ‘more in vogue’ as he puts it.
“We are here, in China, and we see that lots of the other China ETFs are veing traded out of London, New York or even Hong Kong, which is a world away from Beijing,” he says.
“You see a PMI number but that doesn’t reflect the true health of the market and this gives us an edge.”
On its website, CGRO is described as an ‘America-first, China equity investment strategy that filters high alpha targets through a multi-layered risk scoring process’.
“We identified that some of the other Chinese ETFs had really not taken into consideration the political US/China political situation with names that would fall foul of US regulatory interventions and sanctions or contravened national security,” Harburg says. “These firms were targeting US retirement and pension funds, meaning that they were supporting companies that make weapons that could be used to allow China to go to war with the US in the future.”
Harburg believes that people are paying attention, “but people seemed to care less about these things than I thought,” he says.
Within CGRO’s security review board, they ‘ferret out any companies that contravene things such as slavery or ethnic cleansing’.
Harburg believes that the problem was that while China was flatlining in performance terms, against a roaring S&P, the sector suffered a lack of interest. And what a difference a week makes. China has roared back into performance, outperforming the US and for his part, CGRO has raised more money in one week that it did in the whole of last year.
Harburg says: “ETFs are harder than I expected and as a new entrant novice, I think it’s a first mover thing.”
Despite this, his firm is planning a Russian doll set of ETFs, a family of ETFs that supply the yin to the yang of their China exposure, as he puts it, with the planned imminent launch of an ETF focused on reshoring and reindustrialisation in the US – “what will be needed where we have competitive advantage”.
