China is the world’s second-largest economy behind only the U.S. and that behemoth economic status is reflected in the world of exchange-traded funds (ETFs). In the U.S., there are close to 50 ETFs dedicated to China and that does not include dozens of diversified emerging markets funds that feature significant exposure to Chinese stocks.
Despite China’s prominence on the global economic stage, only three Chinese ETFs — the iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI), iShares MSCI China Index Fund (NASDAQ:MCHI) and the SPDR S&P China (ETF) (NYSEARCA:GXC) — have more than $1 billion in assets under management.
Interestingly, historical data suggest investors have been rewarded for getting tactical with Chinese ETFs. Some of the best ETFs taking advantage of Chinese stocks are those that eschew big allocations to state-controlled companies, focusing more on China’s booming consumer and internet markets. In other words, many of the best China-focused ETFs, though still undiscovered by many investors, target the country’s new economy.
Here are some of the best Chinsese ETFs to consider right now.
Best Chinese ETFs: PowerShares Golden Dragon China Portfolio (PGJ)
Expenses: 0.7%, or $70 annually for every $10,000 invested (includes 3-basis-point fee waiver)
The PowerShares Golden Dragon China Portfolio (NASDAQ:PGJ) is neither new nor tiny among Chinese ETFs.
This fund is almost 13 years old and it has almost $207 million in assets under management. While PGJ can be viewed as a competitor to traditional, diversified Chinese ETFs, such as the aforementioned FXI and GXC, this fund goes about its business in a much different way.
Typically, a Chinese ETF as old as PGJ will feature massive exposure to financial services and low allocations to fast-growing technology stocks. However, PGJ allocates a combined 84% of its weight to technology and consumer discretionary stocks. In fact, all of PGJ’s top 10 holdings are classified as consumer discretionary, internet or technology stocks.
That group includes familiar names such as Baidu Inc (ADR) (NASDAQ:BIDU), JD.com Inc(ADR) (NASDAQ:JD) and Ctrip.com International Ltd (ADR) (NASDAQ:CTRP).
PGJ has jumped 47% year-to-date compared to 27.6% for FXI, which is the largest Chinese ETF. In fact, investors have added almost $21 million in new assets to PGJ over the past 90 days.
Best Chinese ETFs: Guggenheim China Small Cap ETF (HAO)
Expenses: 0.75%
The Guggenheim China Small Cap ETF (NYSEARCA:HAO) is nearly a decade old and it is one of the premier avenues for accessing smaller Chinese stocks.
At a time when U.S. small-caps are disappointing investors, this Chinese ETF is doing the opposite. HAO is up nearly 24% YTD compared to a gain of just 1.5% for the Russell 2000 Index.
This Chinese ETF also dodges state-controlled companies and offers investors exposure to important segments of the massive Chinese economy.
“Historically, small and medium sized enterprises in China have contributed 50% of national tax revenue, 60% of GDP and 80% of employment. (Source: World Trade Organization, 2014),” according to Guggenheim.
HAO is diverse at the sector level as five groups command double-digit weights. Industrials are the fund’s largest sector weight at 19%, but technology and consumer discretionary stocks combine for over 28% of this Chinese ETF’s roster.
Best Chinese ETFs: Global X China Consumer ETF (CHIQ)
Expenses: 0.65%
The Global X China Consumer ETF (NYSEARCA:CHIQ) is proving its mettle as one of the best Chinese ETFs this year with a gain of over 41.8%.
As its name implies, CHIQ is dedicated to consumer stocks and the fund’s nearly 40 holdings include a mix of consumer discretionary and staples names.
A key contributor to CHIQ’s impressive 2017 showing is Alibaba Group Holding Ltd (NYSE:BABA). Alibaba is CHIQ second-largest holding at a weight of more than 6%, and that has been a boon for the fund, given that BABA shares have nearly doubled this year. Several of this Chinese ETF’s top 10 holdings — a group forming over half the fund’s weight — are high-flying Chinese internet stocks.
CHIQ sports a price-to-earnings ratio of around 20, which is a premium to the MSCI Emerging Markets Index, but a metric that puts this Chinese ETF in-line with U.S. consumer discretionary names.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
