Emerging markets have been off to the races in 2017, and China has played a huge role in fueling that growth. The world’s second-largest economy felt the heavy contraction that plagued many stock markets throughout 2015 as commodity and currency volatility took their toll. However, its turning point coincided with a global rally in risk assets that has been persistently strengthening over the last eighteen months.
The largest and most heavily traded among the exchange-traded funds that track this market is the iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI). This ETF has $3.38 billion dedicated to a concentrated mix of roughly 50 mega-corporations that are domiciled in China and traded as ADRs in the United States. It has an 0.74% expense ratio, or $74 per $10,000 invested annually.
FXI demonstrates a multisector mix of stocks within its country-specific portfolio. Additionally, the market-cap-weighted structure ensures that the 10 largest holdings control over 55% of the assets. The top-ranked stock in this ETF is Tencent Holdings Ltd (OTCMKTS:TCEHY), which is a vast technology-related conglomerate.
As you can see on the chart below, FXI just recently surged to new 52-week highs and is one of the best-performing global markets in the month of July. This ETF has now gained 23.4% year-to-date and is up nearly 60% from its February 2016 low.
While in the short-term this fund may be stretched to the upside and worthy of a pullback, its overall trend remains quite healthy.
ETF investors who prefer a stronger dose of diversification may be more comfortable with the iShares MSCI China Index ETF (NASDAQ:MCHI) or the SPDR S&P China (ETF) (NYSEARCA:GXC). These funds rank number two and three respectively based on asset size and offer modestly lower expense ratios than FXI as well.
MCHI tracks 150 Chinese stocks with a management fee of 0.64%, while GXC owns over 300 holdings with an expense ratio of 0.59%. Both funds have beat FXI over the last year largely because of their smaller company exposure boosting net returns.