Ten years ago, one exchange-traded fund (ETF) might have been just as good as another focusing on the same sector, but that is no longer the case. Take China ETFs, for example. While the iShares FTSE/Xinhua China 25 Index Fund (NYSE: FXI) may have the lead in hearts and minds of China-hungry investors, other funds of the same ilk may actually be the better choice, depending on your goal or strategy.
Check out the year-to-date performance chart below that compares FXI to all the other major China-oriented funds: iShares MSCI Hong Kong Index Fund (NYSE: EWH), Claymore/AlphaShares China All-Cap ETF (NYSE: YAO), SPDR S&P China ETF (NYSE: GXC) and iShares FTSE China (HK Listed) Index Fund (NASDAQ: FCHI).
While one could reasonably expect a mild amount of disparity when it comes to returns, you’d think they’d all basically offer the same results. After all, they’re each investing in the same broad cross-section of China’s stocks. But you’d be wrong.
Performance Comparison of China ETFs
A 17% gain for the leader (EHW), and a 5% gain for the laggard (FXI), but the same underlying stocks? Wow. Even taking out the leader, you’ve still got a 100% disparity from the next (YAO) best performer and the weakest one.
Of course, the different performances come as no real surprise once you look under the hood of these funds and really see what each is holding.
Just like many U.S.-based ETFs, the idea of a “cross section of the country’s stocks” can have various meanings. For instance, FXI’s biggest two holdings are China Mobile Ltd. (NYSE: CHL) and China Construction Bank Corporation. That sharply contrasts with the two biggest holdings of the EWH, which are Sun Hung Kai Properties Ltd. and Cheung Kong Holdings Ltd.
To be clear, this isn’t a complaint. Quite the contrary actually. We should be celebrating these differences, so we can get the most out of a regional-based opportunity rather than sit contently holding watered-down carbon-copies of ETFs. And that’s where the real China opportunity comes to light.
China Sector ETFs
They may still qualify as “new,” but several sector-based China exchange-traded funds are plenty liquid enough to trade now, and the performance separation within the group is easily wide enough to prompt a trader to pick and choose certain vehicles.
Take a look at the year-to-date performance chart of these sector-based ETFs. And take special notice a 20% gap between the leader, Global X China Consumer (NYSE: CHIQ), and the laggard, Global X China Materials ETF (NYSE: CHIM), for the year so far.
Performance Comparison of China Sector ETFs
Our favorites are the three leaders:
1. Global X China Consumer (NYSE: CHIQ)
2. Claymore/AlphaShares China Small Cap (NYSE: HAO)
3. Claymore/AlphaShares China Real Estate (NYSE: TAO)
We either currently own those names in the ETF portfolio, or intend to own soon. Any of them offer a little more “umph” than FXI does at this point.
The point here is simply to highlight the fact that there are obscure trends within the bigger China trend that are well worth tapping into. That’s one of the focal points of our ETF service, and the approach has been very rewarding.
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