The SPDR S&P 500 ETF (NYSEARCA:SPY | SPY Price Prediction) is among the most well-known exchange-traded funds on the planet, but “well-known” and “best-performing” are two very different things.
The S&P 500 has posted respectable double-digit gains for two consecutive years and will likely do it for a third year in 2025. There’s no need to abandon an ETF that gives you great gains, diversification, and comes at a low cost. However, it’s always worth holding satellite ETFs that can boost your gains and give you exposure to a completely new set of stocks.
You can hold another tech ETF like the QQQ, for example. But you should keep in mind that there’s plenty of overlap between the two. Nvidia (NASDAQ:NVDA) makes up almost 8% of the S&P 500. The QQQ’s exposure to NVDA is a little above that at 9.87%. The names you’ll see in their top 10 holdings are almost identical.
The solution is to look beyond borders.
KraneShares CSI China Internet ETF (KWEB)
The KraneShares CSI China Internet ETF(NYSEARCA:KWEB) gives you exposure to Chinese internet companies by tracking the CSI Overseas China Internet Index. Tech stocks from China have performed terribly since 2022, but they’re now catching up quickly, so much so that they’ve trounced their U.S. counterparts in 2025.
The SPY has returned 13.67% year-to-date, whereas KWEB is up 37.19% year-to-date, as of this writing. That’s a 272% difference.
And if you extrapolate current trends, it’s easy to see KWEB doing the same next year.
Tariffs have not disappeared, and the greenback’s slow grind lower against a basket of trading partners is eroding the real return of purely domestic portfolios. The question for 2026 is whether the forces that powered this year’s outlier can stay in place. Earnings revision momentum has turned positive, and policy rhetoric out of Beijing has shifted from a crackdown to “high-quality growth”.
The setup is similar to the one that preceded this year’s edge over SPY.
Plus, fundamentals are also in their favor today.
Nvidia’s CEO Jensen Huang said Chinese chipmaking is “nanoseconds behind” the U.S. And when it comes to AI models, Chinese ones have been continuously climbing the ladder on benchmarks, that too at a fraction of the cost.
Why KWEB’s holdings have outperformed
KWEB’s biggest holding is Alibaba (NYSE:BABA) at 11.03%. This stock is up 94.7% year-to-date after years of sluggish returns, thanks to the company’s growth picking up speed. Revenue grew 13.1% year-over-year in the June quarter, with margins growing 9.26%.
The storm seems to have cleared for Alibaba as Jack Ma returned to Alibaba earlier this year, and the company is fighting tooth and nail with other AI firms for the best model. A reporter from The Washington Post stated, “Open models from Chinese firms such as e-commerce giant Alibaba are rated higher than those from American companies such as OpenAI and Meta…”
Given that AI is increasingly being considered as one of the leading factors for evaluating a company, it’s no wonder that investors are slapping a higher premium on BABA stock.
The second-biggest holding is Tencent Holdings (OTCMKTS:TCEHY). It is up 51.8% year-to-date and makes up 10.84% of the fund. Tencent has benefited significantly from AI-driven targeted advertising and auto-ad creation. Games are also being beefed up with Hunyuan-powered NPCs and AI-assisted content. International gaming sales grew 35% and domestic gaming sales rose 17%.
The third-biggest holding is PDD Holdings (NASDAQ:PDD). PDD is bucking the trend and is up 31.6% year-to-date. PDD constitutes 7.58% of the fund. The company is handling U.S. tariffs well, as domestic e-commerce (Pinduoduo) still supplies the vast majority of revenue.
Why I’d buy KWEB
2026 could bring more gains for the KWEB ETF as Chinese tech companies make up lost ground. Chipmakers are aggressively closing in on silicon self-sufficiency, and AI models are progressively getting better. Growth was the biggest problem two years ago, but as AI starts driving double-digit growth, investors are paying bigger premiums. The valuation remains attractive for a satellite holding.
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