China ETF: Say Hello to YAO

NEW YORK (TheStreet) -- The new Claymore/AlphaShares' China All-Cap ETF(YAO Quote) is aimed at a new group of China investors looking for a well-rounded fund.

In an ETF marketplace dominated by large-cap offerings like iShares FTSE/Xinhua China 25 Index(FXI Quote), and small-cap funds like Claymore/AlphaShares China Small Cap Index ETF (HAO Quote), YAO tries to achieve diversification.

YAO joins a pair of existing Claymore China funds, including HAO and Claymore/AlphaShares China Real Estate ETF(TAO Quote). FXI, the iShares behemoth, dominates when it comes to market share, with nearly 22 million shares changing hands each day.

FXI, however, takes a limited market-cap-weighted approach. Launched in October 2004, FXI seeks to track the 25 largest companies in the Chinese equity space, many of which are government-owned. Top components include China Mobile(CHL Quote), China Life Insurance(LFC Quote) and Cnooc(CEO Quote). Sector allocation is heavily weighted toward financials, which comprise more than 45% of the fund's underlying assets and makes FXI's sector exposure lopsided.

YAO's portfolio includes many of the same government-controlled giants as FXI, but also offers exposure to smaller-cap equities. While 53% of the YAO portfolio is currently dedicated to large-cap firms, mid- and small-cap companies comprise 33% and 10% of the portfolio, respectively.

The resulting mix in YAO's underlying basket offers a slightly more balanced view when it comes to sector allocation. Financials make up 34.87% of the portfolio, while energy and information technology make up 17.89% and 11.61%, respectively. Investors will still be weighted toward financials, but not cornered by a strong financial sector bias.

When it comes to sector balance, YAO's biggest competitor will likely be the SPDR S&P China ETF(GXC Quote), which focuses on large-cap China firms. GXC's top three sector holdings are also financials, energy and telecommunication, with 33.22%, 19.24% and 12.80% allocations respectively.