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China ETFs: The Biggest Dragons in the Lair

A prospective client asked me which parts of the world I thought were the best in terms of where to start adding international equity exposure. My first response‚?¶ China.

In last week‚??s issue of the Weekly ETF Report, I mentioned that my job as an investment adviser allows me¬†the opportunity to get unique insight into a wide range of investors’ portfolios. I also mentioned that I enjoy this process, as it tells me a lot about how investors are approaching the markets, and where there is a distinct concentration of assets, as well as a dearth¬†of assets.

One portfolio in particular that I reviewed this week was heavily weighted toward U.S. equities and cash. This situation certainly is a common one for investors of late. While this gentleman‚??s portfolio was doing pretty well, there was little¬†diversification, with¬†virtually zero allocation to international markets.

Interestingly, this lack of international exposure was something this prospective client realized. He then asked me which parts of the world I thought were the best in terms of where to start adding international equity exposure.

My first response‚?¶ China.

As I also mentioned in last week‚??s issue, China‚??s equity markets are poised to never be the same again, as China just launched what‚??s called the ‚??Shanghai-Hong Kong Stock Connect‚?Ě program. The program allows retail investors around the world to invest in mainland Chinese equities, also known as China‚??s A-Shares market. The linking of the Shanghai and Hong Kong exchanges will allow approximately 23.5 billion yuan ($3.8 billion) of daily trading between the two markets, which¬†will essentially open up the mainland China equity markets to an influx of new foreign money.

This influx explains¬†the¬†bullish tailwind that‚??s been seen in most Chinese ETFs, especially during¬†the past month. The table here shows the top 10 China ETFs by total assets.

Ticker Name 1MO% 3MO% YTD% Assets in $Millions
FXI iShares China Large Cap 0.56 -7.18 0.22 5,498.93
MCHI ISHARES MSCI CHINA INDEX FD 0.74 -6.72 -1.00 1,214.52
GXC SPDR S&P China ETF 1.84 -5.87 -0.03 964.45
ASHR DB HARVEST CSI 300 CHINA A 5.34 8.92 10.42 530.56
PGJ PowerShares Gldn Dragon Halter China 3.62 -8.54 1.02 261.65
HAO Claymore/AlphaShares China Small Cap 2.74 -1.64 1.62 216.09
KWEB KRANESHARES CSI CHINA INTERNET 6.17 -9.19 9.32 167.37
CHIQ GLOBAL X CHINA CONSUMER ETF -0.77 -10.66 -15.41 130.50
CQQQ Claymore/AlphaShares China Technology 3.87 -4.88 5.65 71.75
YAO Claymore/AlphaShares China All-Cap 1.87 -6.66 -0.03 51.93

By far the biggest fund invested exclusively in¬†the China market is the iShares China Large-Cap (FXI). This fund holds the top 50 largest stocks traded on the Hong Kong exchange (the fund‚??s name was recently changed from the iShares FTSE China 25 Index).

FXI_112014

After a nice run higher from mid-March to early September, FXI gave back some ground. Since falling to its October low, the shares have staged a modest comeback. Still, FXI hasn‚??t taken off over the past month the way the DB Harvest CSI 300 China A-Shares (ASHR) has. In the past month, it has improved 5.34%.¬†Then there are more targeted funds such as the Kraneshares CSI China Internet (KWEB), which has seen its share price rise 6.17% during the last four weeks.

KWEB_112014

Thanks to the proliferation in recent years of ETFs pegged to China‚??s various market sectors, investors can get really diverse exposure to the world‚??s second-largest economy with ease. And while China‚??s gross domestic product (GDP) growth has plateaued in recent quarters, keep in mind that China is still growing at a 7% pace, a rate that¬†puts most emerging markets to shame. It also dwarfs U.S. economic growth.

If you‚??d like to find out how you can diversify your portfolio with the right mix of Chinese ETFs and U.S.-based equity ETFs, I invite you to check out Successful ETF Investing today!

Profound Thoughts on a Good Habit

‚??We are what we repeatedly do. Excellence, then, is not an act, but a habit.‚?Ě

–Aristotle

The greatest philosopher of all knew that if you want to be excellent, you better practice all the time. Definitely, these are words to live by.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you‚??d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about the coming changes to China’s market and their effect on the world. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Written By

Doug Fabian is the editor of Successful Investing and High Monthly Income, and is the host of the syndicated radio show, "Doug Fabian's Wealth Strategies." Taking over the reigns from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert‚??s Investment Digest. For more than 30 years, Successful Investing (formerly the Telephone Switch Newsletter) has produced double-digit annual gains. Doug has become known for his expert knowledge and timely use of innovative tools like Exchange Traded Funds, bear funds and Enhanced Index funds to profit in any market climate.

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