Investors should consider China.
American markets are advancing at a brisk pace in 2017, but the Chinese are blowing us out of the water. While the Standard & Poor’s 500 index has climbed 9 percent this year, many broad-based China equity exchange-traded funds have raced ahead by 30 to 40 percent. That’s being driven by several factors, such as a global technology rally and index provider MSCI’s decision to include Chinese mainland companies in its indexes. And yes, the growth of China’s economy might be slowing, but GDP expansion of nearly 7 percent still makes the Middle Kingdom a highly attractive investment target. Here are nine ETFs that allow you to tap into areas of potential Chinese growth.
SPDR S&P China ETF (ticker: GXC)
The iShares China Large-Cap ETF (FXI, $3.5 billion in assets under management) and the iShares MSCI China ETF (MCHI, $2.7 billion AUM) are first-to-mind when it comes to broad Chinese exposure. However, you can cast a wider net than both with SPDR’s GXC, which at 355 holdings covers far more of China’s markets than FXI (51 holdings) and MCHI (151 holdings). This SPDR ETF features a heavy dose of information technology (34.9 percent) and financial (22.4 percent) stocks, illustrated by its top 10 holdings, which include Tencent Holdings and Alibaba Group (NYSE: BABA) at double-digit weights, followed by China Construction Bank at 4.7 percent.
Expenses: 0.59 percent or $59 per $10,000 invested
WisdomTree China ex-State-Owned Enterprises Fund (CXSE)
WisdomTree also offers wide China exposure, but with a twist — it excludes any company that sports a Chinese government ownership stake of more than 20 percent, “neutralizing companies potentially influenced by government decisions.” The main difference is more of a consumer discretionary bent than GXC (24 percent to 11 percent), and less reliance on financials (16 percent). It also means that CXSE still is thick in China’s burgeoning tech sector, with a 35 percent weighting that includes Alibaba, Tencent, web services giant Baidu (BIDU) and e-commerce play JD.com (JD).
Expenses: 0.32 percent (includes 31-basis-point fee waiver)
Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF (ASHS)
If you’re chasing growth, you should have some exposure to small-cap stocks. While there are several options that tap into China the traditional way (via Hong Kong-traded securities), Deutsche Bank’s ASHS invests in “A shares” — companies that trade on the mainland, via either the Shanghai or Shenzhen exchanges. These stocks are believed to be more representative of China’s economy, versus “H shares” that represent more international companies. No surprise, then, that ASHS has a much different look, with industrials (22.7 percent) and materials (18.7 percent) making up significant swaths of this fund, while financials are relegated to a fractional sliver.
Expenses: 0.65 percent
Guggenheim China Technology ETF (CQQQ)
Those who believe China’s technological renaissance isn’t quite over would do well with Guggenheim’s CQQQ — one of a growing number of Chinese sector and industry funds. CQQQ and its basket of 72 Chinese tech stocks have put up a scorching 55 percent return year-to-date. Naturally, that performance has been led by internet darlings Tencent, Alibaba and Baidu, but investors should know CQQQ is more than just web stocks. Optical and scientific instrument maker Sunny Optical has more than tripled year-to-date, while speaker and microphone specialist AAC Technologies has “only” put up a near doubler.
Expenses: 0.7 percent
KraneShares CSI China Internet ETF (KWEB)
China’s internet industry has been the stud of 2017, and why not? That market grew 6.2 percent in 2016 to 731 million users, with 95 percent of that population accessing the internet via their phones, and the current count as of June 30 was 738 million users — 160 percent more than the United States! KraneShares’ KWEB is a laser-focused portfolio of about 30 stocks that should thrive as China’s internet population swells. This includes the aforementioned big names like Alibaba and JD.com, but also online travel company Ctrip.com International (CTRP) and online automobile listing and information outlet Autohome (ATHM).
Expenses: 0.72 percent
Global X China Consumer ETF (CHIQ)
Technology isn’t the only Chinese sector that’s hitting the roof this year. As the nation’s economy blossoms, more money is going into the hands of both elites and a burgeoning middle class, helping to boost the fortunes of China’s consumer companies. Global X’s CHIQ is a dual-sector play on both discretionary and staples stocks, and like many of the firm’s international plays, the portfolio is focused at under 40 holdings. Automaker Geely Automotive and private educator New Oriental Education & Technology Group (EDU) are among the ETF’s heaviest weights, though the consumer angle ensures you still capture the growth of BABA and JD.
Expenses: 0.65 percent
Guggenheim China Real Estate ETF (TAO)
China’s real estate market is a constant bubble concern, and the country even suffered its first home-price decline since 2015 amid a government push to make housing more affordable. That hasn’t yet dampened the spirits of anyone holding TAO — a collection of about 60 Chinese real estate investment trusts, including Country Garden Holdings and China Evergrande. TAO and its payout, made annually, has been fairly volatile, so the yield is a moving target. Depending on when you bought, its past few payouts have ranged between 2 percent and 5 percent.
Expenses: 0.7 percent (includes 45-basis-point fee waiver)
KraneShares Zacks New China ETF (KFYP)
Every five years, China’s government outlines a series of economic initiatives and focus groups meant to shape the country for the next five years. For instance, the current “13th Plan,” covering 2016 to 2020, aims to encourage updating heavy industry with more modern technology, developing green tech and opening financial markets, among other efforts. The KFYP provides all-cap exposure to areas emphasized by China’s five-year plans, and it’s not subtle. Tech takes up just more than half the fund’s weight, while discretionaries and staples combine for roughly 30 percent. A few sectors, such as financials and materials, are outright ignored.
Expenses: 0.73 percent
First Trust Chindia ETF (FNI)
Rather than hedging your bets on China by purchasing a broad emerging-markets fund, First Trust’s FNI allows investors to tap two monster EMs — China and India — while eliminating riskier riffraff. India is an ideal complement to China at the moment, featuring a business-friendly administration and slowing but still robust 6 percent-plus GDP growth despite demonetization efforts meant to curb the country’s black markets. FNI invests in 50 stocks — 25 from each country — with a modified equal-weighting system meant to balance exposure between the pair. Alibaba and Baidu top the Chinese side, while India is led by HDFC Bank (HDB) and ICICI Bank (IBN).
Expenses: 0.6 percent
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9 ETFs to Capture China’s Red-Hot Growth originally appeared on usnews.com
