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5 ETFs to Ride on Alibaba's Solid Earnings & Outlook

Chinese e-commerce giant Alibaba Group BABA reported robust second-quarter fiscal 2018 results before the opening bell yesterday. The company beat our earnings and revenue expectations as well as lifted its fiscal year revenue guidance.

Earnings of $1.29 per ADS came in much above the Zacks Consensus Estimate of $1.04. Revenues jumped 61% year over year to $8.3 billion and surpassed our estimate of $7.8 billion. The robust performance was credited to the growing core e-commerce business, booming cloud computing services and strong media and entertainment growth (read: Here's Why China Tech ETFs Are Surging).

Core e-commerce revenues grew 63% year over year, cloud computing revenues soared 99% while digital media and entertainment revenues increased 33%. Mobile monthly active users on its China retail marketplaces increased 20% year over year to 549 million while annual active buyers reached 488 million, up 22% year over year.

The Chinese e-commerce giant has been expanding its presence in core online retail business with investments in supermarkets and stores as well as investing in new artificial intelligence and cloud computing businesses. As such, it raised its full-year revenue growth outlook to 49-53% from 45-49% for the holiday quarter (read: Here's Why China Tech ETFs Are Surging).

Market Impact

Blockbuster earnings have initially sent BABA shares to an all-time high but was unable to maintain strength at the close, falling 0.7% on the day. The positive momentum is likely to continue given that Alibaba has a Zacks Rank #3 (Hold) and a Growth Style Score of A though it has an ugly Zacks Industry Rank in the bottom 38%.

Further, given solid results and promising growth opportunities, it would be not surprising if co-founder Jack Ma's Alibaba would overtake the U.S. e-commerce giant Amazon in terms of market cap in the coming months. Alibaba currently has a market cap of $473.1 billion, closer to the market cap of $527.3 billion for Amazon (see: all the Technology ETFs here).

Given this, investors may want to bet on Alibaba for higher returns. The dip in price could be a good opportunity to cash in on the same. As a result, we have highlighted five ETFs having the highest allocation to the Chinese e-commerce giant that have upside potential in the coming months.

BLDRS Emerging Markets 50 ADR Index Fund ADRE
 
The product offers exposure to the 50 emerging market-based depositary receipts by tracking the BNY Mellon Emerging Markets 50 ADR Index. About 43.2% of the portfolio is allotted to Chinese firms with Alibaba occupying the top position at 17.7%. Brazil, Taiwan and India round off the next three spots, in terms of country exposure. From a sector look, information technology accounts for 43.5% share, followed by financials (16.5%), telecom services (11.6%) and energy (8.5%). ADRE has amassed $159.1 million in its asset base while trades in a light volume of about 9,000 shares. It charges 30 bps in fees per year and lost 0.2% on the day. ADRE has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares MSCI China ETF MCHI

This ETF follows the MSCI China Index, holding 151 securities in its basket. Of these, Alibaba takes the second spot at 13.6% share. From a sector look, about 40.6% of the portfolio is allotted to information technology while financials and consumer discretionary round off the next three spots. The fund has amassed $2.6 billion in its asset base while charging 64 bps in annual fees. Volume is also solid as it exchanges nearly 1.5 million shares in hand on average daily basis. The ETF added 0.15% following the results and has a Zacks ETF Rank #3 with a Medium risk outlook (read: China ETFs in Focus as GDP Growth Slows).

Guggenheim China Technology ETF CQQQ

This fund targets the overall technology sector in China and follows the AlphaShares China Technology Index. Holding 72 stocks, Alibaba occupies the second position in the basket with 11.3% share. The product manages an asset base of $330.2 million while trades in a small volume of around 81,000 shares a day. Expense ratio comes in at 0.70%. CQQQ added 0.15% on the day, following Alibaba results and has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

KraneShares CSI China Internet Fund KWEB

This product provides a concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index. In total, the fund holds 35 securities in its basket with Alibaba occupying the second spot at 10.8%. The technology sector makes up for a substantial 60% of total assets, while consumer discretionary takes the remainder with just 2.5% allotted to industrials. The ETF has amassed $753 million in its asset base and charges 72 bps in annual fees from investors. Volume is solid as it exchanges more than 412,000 shares in hand per day. KWEB shed 0.2% in the last trading session, following the Alibaba earnings announcement, and currently has a Zacks ETF Rank #3 with a High risk outlook.

Guggenheim BRIC ETF EEB

This product provides exposure to BRIC countries and follows the BNY Mellon BRIC Select DR Index. In total, it holds 112 stocks with Alibaba at the top position, accounting for 10.2% of assets. Energy and information technology takes the largest share from a sector look at 23.4% and 22.8%, respectively, while financials round off the next spot with a double-digit exposure. The ETF has $91.9 million in AUM and sees a paltry volume of around 9,000 shares. Expense ratio came in at 0.64%. The fund was up 0.2% on the day and has a Zacks ETF Rank #3 with a Medium risk outlook (read: Emerging Markets Leading This Year: 5 Top-Performing ETFs).

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Alibaba Group Holding Limited (BABA): Free Stock Analysis Report
 
GUGG-CHINA TEC (CQQQ): ETF Research Reports
 
ISHARS-MS CH IF (MCHI): ETF Research Reports
 
GUGG-BRIC (EEB): ETF Research Reports
 
BLDRS-EMER MKTS (ADRE): ETF Research Reports
 
KRANS-C CHN INT (KWEB): ETF Research Reports
 
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