Never fear, China will bounce back.
Forget what the Chinese Zodiac says — right now, it feels like the Year of the Dog. The Shanghai Stock Exchange is off 14 percent to start the year, a tumble that reverberated through global stock markets and sent investors scurrying. Of course, Chinese stocks have crashed and recovered before, and investors would be wise to remember that China is a massive economic engine that’s still growing much faster than most developed markets. China will rebound, and these exchange-traded funds are some of the best ways to get in position.
iShares China Large-Cap ETF (ticker: FXI)
FXI, which holds stocks that trade on the Hong Kong Stock Exchange, is the largest U.S.-traded ETF of Chinese equities at $4.7 billion in assets under management, and it’s typically the first ETF people think of when they think of Chinese stocks. It’s also a very concentrated and lopsided fund, however, with just 51 holdings and more than half of its weight behind financial stocks such as China Construction Bank and Industrial & Commercial Bank of China.
Expenses: 0.73 percent, or $73 annually for each $10,000 invested
iShares MSCI China ETF (MCHI)
iShares also boasts the No. 2 Chinese-focused fund in the U.S., the MCHI. But while it trails in assets ($1.9 billion), it has FXI beat in several other aspects. The 37 percent weight in financials isn’t light, but it’s thinner than FXI there. And it boasts much more exposure in tech, at 22 percent of the fund, including Tencent Holdings, an Internet titan with tentacles in media and mobile services. MCHI also spreads its assets across far more stocks (161) and charges 9 basis points less in fees.
Expenses: 0.62 percent
SPDR S&P China ETF (GXC)
The third in a trio of broad, large-capitalization funds, SPDR’s GXC is the most diversified and the cheapest of the bunch. GXC invests in roughly 700 companies, and it features just 31 percent exposure to financials. That weight is redistributed to information technology (a hefty 26.5 percent), as well as a healthy 10 percent exposure to Chinese consumer discretionary companies.
Expenses: 0.59 percent
Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (ASHR)
This mouthful of a fund is a diversion from the previous three funds in that it invests in Chinese A-shares — companies from the Chinese mainland that trade on the Shanghai and Shenzhen stock exchanges. You’re looking at much different top holdings than FXI, MCHI and GXC, but still a financial-heavy bent (40 percent) across the fund’s 313 stocks. ASHR also invests heavily in industrial stocks (16 percent).
Expenses: 0.8 percent
Guggenheim China Technology ETF (CQQQ)
If you’re tired of financials at this point (who could blame you?), you can go another route with the CQQQ, which holds 73 Hong Kong- and China-based stocks that are almost exclusively in the tech sector, including Tencent, e-commerce play Alibaba Group Holding (BABA) and search giant Baidu (BIDU). Oddly, 0.22 percent of the fund classifies as industrial.
Expenses: 0.71 percent
Guggenheim China Small Cap ETF (HAO)
Another way to slice the Chinese stock market is by investing in the country’s smaller-capitalization companies. While FXI was posting 80 percent gains from 2008 through 2015, HAO doubled that at 160 percent. The weight is spread thinly across HAO’s 320 holdings, with the heaviest weight going to TAL Education Group (XRS) at 1.08 percent. Sector spread is even, too, with industrials, consumer discretionary, financials and tech all getting between 14 percent and 21 percent weight.
Expenses: 0.75 percent (includes an 8-basis-point waiver through Dec. 16, 2016)
WisdomTree China ex-State-Owned Enterprises Fund (CXSE)
If you’re looking for ownership in Chinese companies without Chinese governmental control, CXSE is your ticket. The ETF won’t invest in companies that are “state-owned,” which is defined as governmental ownership of 20 percent or more. The result is a fund with more than half its weight dedicated to technology (33 percent) and consumer discretionary (29 percent). But remember: Just because the companies aren’t state-owned doesn’t mean they’re immune to governmental tinkering.
Expenses: 0.53 percent (includes a 10-basis-point waiver through July 31, 2016)
Direxion Daily FTSE China Bull and Bear 3x Shares (YINN and YANG)
Traders trying to make quick, tactical plays on China can supercharge their bets via YINN and YANG, a pair of 3x leveraged ETFs. For every 1 percent gain in the FTSE China 50 Index, YINN should theoretically rise 3 percent (backing out fees). Those who still think China has some room to lose could jump into YANG, which should rise 3 percent for every 1 percent decline.
Expenses: 0.95 percent (includes a 14-basis-point waiver for YINN and a 25-basis-point waiver for YANG, both good through Sept. 1, 2016)
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Chinese ETFs: 9 Ways to Play the Middle Kingdom originally appeared on usnews.com
