China ETF — Guggenheim China Small Cap ETF (HAO)
As every month passes, China becomes less like the wild west and more like a nation ready to be a developed market. It’s not quite there yet, but if China is on your radar I think it’s important that you at least consider a small-cap China ETF to round out your investment in the region.
For my money, the Guggenheim China Small Cap ETF (HAO) makes more sense for the average investor than iShares’ MSCI China Small-Cap ETF (ECNS). Despite the net expense ratio 14 basis points higher than ECNS (at 0.75%), the HAO’s additional focus on financials and industrials — 35% of portfolio versus 30% for ECNS — provides extra stability should the move to domestic consumption not pan out as quickly as some anticipate.
Furthermore, HAO invests 45% of its funds in large-cap stocks, compared to just 9% for ECNS. If things go south in China, I’d be more comfortable hedging my bets with larger companies. It’s not something I’d do with U.S. stocks, but when it comes to Chinese stocks I still believe discretion is the better part of valor.
When it comes to China ETFs, the No. 1 rule (as with any investment) is preservation of capital. In the long-term, I believe HAO will do a better job in this regard despite underperforming its peer over the past three years.
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As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.