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CHNA BioPharma ETF Primer

Aug. 24, 2018

August 15th marked the start of trading on Nasdaq in the United States of our new ETF, the China BioPharma ETF (Nasdaq: CHNA). CHNA follows the Cancer Immunotherapy ETF (Nasdaq: CNCR) as the second product under the Loncar Funds brand of innovative biotechnology-focused ETFs. For those of you who might be new to ETFs, we thought it would be helpful to explain a little more about how this product works.

What is the ETF’s investment objective?

The China BioPharma ETF seeks to track the performance, before fees and expenses, of the Loncar China BioPharma Index. 

The ETF offers exposure to a basket of companies powering China’s biopharmaceutical industry. With a long-term goal of steering its economy towards innovation, China aims to be a global leader in medicine. CHNA ETF seeks to invest in this opportunity with the convenience of one security that trades in the United States. It invests in pharmaceutical companies, biotech companies, drug manufacturers, diagnostics companies, wholesalers, distributors, and service providers that have a strategic role in growing China’s drug industry.

What companies are included?

The list of all of CHNA’s holdings is updated every night. Daily transparency is one of the hallmarks of ETFs.

Currently, the ETF holds 28 companies. 22 of which are listed on the Hong Kong Stock Exchange (HKEX) and six that are listed on Nasdaq. It only accepts for inclusion Chinese companies that are listed on these two exchanges because the index creator believes this is a quality factor. HKEX and Nasdaq have high governance standards and may attract companies that want global exposure and scrutiny. 

How often are the holdings changed and what is the weighting strategy?

The portfolio will be reconstituted (new constituents are considered) and rebalanced (the weightings are reset) semi-annually. This is scheduled to take place on the second Monday of February and August. The fund uses a modified equal weighting strategy that gives extra weight to larger companies.

How many shares outstanding does the ETF have?

CHNA ETF is an open-ended investment fund, which means the number of shares outstanding can rise or fall each day to meet market demand. Therefore, it is best to always check the fund’s summary page to see how many shares there are outstanding. If a lot of buying takes place on the stock exchange, new shares will be created to meet the demand. Likewise, selling might cause shares to be retired. The important point is that an open-ended investment fund’s shares outstanding and level of assets under management are entirely up to market demand and can be fluid. CHNA started with a seed amount of $2.5 million in assets and 100,000 shares on its inception date simply so it could start trading.

When does the CHNA ETF trade?

CHNA ETF trades during normal market hours in the United States on the Nasdaq Stock Exchange. Given that the ETF invests in many Hong Kong Stock Exchange listed companies, we believe this is an important aspect of the CHNA ETF. Not all investors have access to foreign markets like Hong Kong or the time, expertise, and risk tolerance to research and invest in individual Chinese companies. Whereas CHNA ETF is available on a major U.S. exchange during U.S. hours and offers exposure to a basket of China BioPharma stocks in the convenience of one security. We hope these characteristics enable it to serve as a bridge between the two regions as it relates to the biopharmaceutical sector.

Can you highlight a few companies held by the fund?

Ascletis Pharma (HK: 1672): Ascletis made history by becoming the first non-revenue generating biotech company to list on the Hong Kong Stock Exchange on August 1st. The company’s lead development programs focus on hepatitis C, HIV, and cancer.

BeiGene (Nasdaq: BGNE, HK: 6160): BeiGene raised $903M in Hong Kong during the first week of August and became the first biotech company to have a secondary listing there (its primary listing is on Nasdaq). The company focuses on the development of cancer treatments and has a major partnership with Celgene.

Genscript Biotech (HK: 1548): Genscript’s Nanjing Legend division is a leader in developing CAR-T cellular immunotherapies for cancer. It has a partnership with Johnson & Johnson’s Janssen unit for which it earned a $350 million upfront payment in December of 2017.

Hutchison China MediTech (Nasdaq: HCM): Also called Chi-Med, this approximately $4.4 billion company is majority owned by CK Hutchison Holdings. The company’s colorectal cancer drug Fruquintinib is currently under review by the China National Drug Administration (CNDA) and is the first new cancer medicine submitted for approval in China that was entirely discovered and developed there.>

Can you tell us about your other fund, The Cancer Immunotherapy ETF?

The Cancer Immunotherapy ETF (Nasdaq: CNCR) is made up of a basket of companies that develop therapies to treat cancer by harnessing the body’s own immune system. Immunotherapy is a transformational field within the biotechnology space that may have a foundational impact on cancer care. By developing immunotherapies that are more effective and may deliver a better quality of life than currently available medicines, innovative immunotherapy companies may be making a difference for courageous patients who battle cancer. CNCR ETF seeks to support this important work and its positive impact on society.

Thank you for your interest in our ETFs. Please be sure to sign up for email alerts at the bottom of this page if you would like to keep up on the news and research we publish from time to time. We aim to make these products educational and hope you enjoy reading more about them.

Opinions expressed are those of the author or Funds and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Fund holdings and allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Celgene, Johnson & Johnson, and CK Hutchison Holdings are not a holding of the Fund or affiliated with the Fund.


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CNCR Prospectus CHNA Prospectus

A basis point is a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001).

The Loncar Cancer Immunotherapy Index is an index of 25 securities that have a strategic focus on the area of cancer immunotherapy, or harnessing the immune system to fight cancer. Quotes for the index can be found under the symbol “LCINDX” on the Bloomberg Professional service and other financial data providers. One may not directly invest in an index.

The Loncar China BioPharma Index is an index of 29 securities that have a strategic focus on advancing China’s biopharma industry. Quotes for the index can be found under the symbol “LCHINA” on the Bloomberg Professional service and other financial data providers. One may not directly invest in an index.

Holdings are subject to change.

The Hong Kong Stock Exchange (HKEX) is the primary stock exchange in the Hong Kong Special Administrative Region of China. Nasdaq is one of the primary stock exchanges in the United States.

Carefully consider the Fund’s investment objectives, risk factors, charges and expenses before investing. This and additional information can be found in the Fund’s prospectus, which may be obtained at www.loncarfunds.com. Read the prospectus carefully before investing.

Investing involves risk. Principal loss is possible. The fund may trade at a premium or discount to NAV. CNCR will invest in immunotherapy companies which are highly dependent on the development, procurement and marketing of drugs and the protection and exploitation of intellectual property rights. A company’s valuation can also be greatly affected if one of its products is proven or alleged to be unsafe, ineffective or unprofitable. The costs associated with developing new drugs can be significant, and the results are unpredictable. The process for obtaining regulatory approval by the U.S. Food and Drug Administration or other governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals with be obtained and maintained. The Fund may invest in foreign securities, which involve political, economic, currency risk, greater volatility, and differences in accounting methods. The Fund is non-diversified meaning it may concentrate its assets in fewer individual holdings than a diversified fund. Therefore, the Fund is more exposed to individual stock volatility than a diversified fund. The Fund invests in smaller companies, which may have more limited liquidity and greater volatility compared to larger companies. The Fund is not actively managed and may be affected by a general decline in market segments related to the index. The fund invests in securities included in, or representative of securities included in, the index, regardless of their investment merits. The performance of the fund may diverge from that of the Index and may experience tracking error to a greater extent than a fund that seeks to replicate an index. Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

RISK FOR THE CHNA ETF: The biopharmaceutical industry in China is strictly regulated and changes in such regulations, including banning or limiting certain products, may have a material adverse effect on the operations, revenues, and profitability of Biopharma Companies. The laws and regulations applicable to the process of administrative approval of medicine and its production in China require entities producing biopharma products to comply strictly with certain standards and specifications promulgated by the government. Changes in currency exchange rates and the relative value of non-U.S. currencies will affect the value of the investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Investments in non-U.S. securities involve certain risks that may not be present with investments in U.S. securities. For example, investments in non-U.S. securities may be subject to risk of loss due to foreign currency fluctuations or to political or economic instability. Investments in non-U.S. securities also may be subject to withholding or other taxes and may be subject to additional trading, settlement, custodial, and operational risks. These and other factors can make investments in the Fund more volatile and potentially less liquid than other types of investments. To the extent the Fund invests a significant portion of its assets in the securities of companies of a single country or region, such as China, it is more likely to be impacted by events or conditions affecting that country or region. The Fund is a recently organized, non-diversified management investment company with no operating history. As a result, prospective investors have no track record or history on which to base their investment decision. The Fund is considered to be non-diversified, which means that it may invest more of its assets in the securities of a single issuer or a smaller number of issuers than if it were a diversified fund. The Fund is not actively managed and the Fund's sub-adviser would not sell shares of an equity security due to current or projected underperformance of a security, industry or sector, unless that security is removed from the Index or the selling of shares of that security is otherwise required upon a reconstitution of the Index in accordance with the Index methodology. To the extent the Fund invests more heavily in particular sectors of the economy, its performance will be especially sensitive to developments that significantly affect those sectors."

Diversification may not protect against market risk.

Exchange Traded Concepts, LLC serves as the investment advisor, and Vident Investment Advisory, LLC serves as a sub advisor to the fund. The Funds are distributed by Quasar Distributors, LLC, which is not affiliated with Exchange Traded Concepts, LLC or any of its affiliates.