New ETFs Focus on China and Options

Wisdom Tree debuts a less-fixated-on-financials Chinese fund

Last week saw a pair of exchange-traded products come to life, doubling the sparse number of offerings for September.

The WisdomTree China Dividend ex-Financials Funds (NASDAQ:CHXF) is the latest “ex-financials” product to come out this year, with this particular product focusing on China-based stocks.

Playing China’s Great Internet Wall
Playing China’s Great Internet Wall

The thought behind CHXF, according to WisdomTree, is that many other Chinese-focused funds don’t offer enough diversified exposure, pointing to the ETP market’s largest China product — the iShares FTSE/Xinhua China 25 Index (NYSE:FXI) — which tracks an index that’s more than 50% weighted in financials.

CHXF certainly is more diverse, sporting a 24% weighting in energy, mid-teen weightings in materials, telecoms, industrials and consumer staples, and mid-single-digit weightings in utilities and consumer discretionary. Top holdings include popular Chinese names like China Mobile (NYSE:CHL), PetroChina (NYSE:PTR) and CNOOC (NYSE:CEO), and it charges 0.63% in expenses.

Josh Brown of The Reformed Broker blog posits a good question about the logic of buying into the fund: “If I don’t like the banks of a country, why would I want to be in their stock market at all?”

The answer given by WisdomTree’s Jeremy Schwartz can be viewed on Brown’s blog, but in short, it points out the outperformance of the broader S&P 500 to financials in the past five years. Of course, a key caveat is in this quote:

“While we can’t say that this will always be the case or that similar results would necessarily hold true for China’s equities, we can say that it is possible for the performance of financials to be markedly different from that of other sectors.”

The logic is sound: It “is” possible for financials’ performance to be different than other sectors. However, it works both ways — the Select Sector Financial SPDR (NYSE:XLF) outperformed the SPDR S&P 500 ETF (NYSE:SPY) and many of the component sectors from 2001 to 2004, for instance. So just make sure you have a reason as to why you think Chinese financials will underperform before investing.

Also launching last week was the AdvisorShares STAR Global Buy-Write ETF (NYSE:VEGA), which  depending on the market cycle.

VEGA uses a covered call strategy against its long positions in several ETPs. Essentially, VEGA sells call options against each position to gain price appreciation from its long holdings while generating income from the sale of covered calls or cash-secured put options. When volatility is low, VEGA will buy protective put options to manage downside risk.

VEGA’s holdings include the SPDR S&P 500 ETF, iShares MSCI Emerging Markets Index (NYSE:EEM) and Select Sector Energy SPDR (NYSE:XLE).

In short, the fund is a low-risk option for investors, though it charges a hefty 2.01% in expenses.

The previous week saw a frontier-market ETF come to market. In all, 144 new funds have come out so far in 2012, according to

Kyle Woodley is the assistant editor of As of this writing, he did not hold a position in any of the aforementioned securities. Follow him on Twitter at @IPKyleWoodley.

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