By Kevin Grewal, Editorial Director at www.SmartStops.net
NEW YORK ( TheStreet) -- When it comes to the global economy, China continues to be the talk of the town. To take it a step further, the nation, expected to witness the largest economic growth in 2010, is said to be driving the fate of exchange traded funds.
According to a recent Securities and Commission filing by the Chinese Investment Corporation, or CIC, the sovereign wealth fund holds north of $9 billion in U.S. equity investments. The detailed filing further indicates the following allocations:
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$254 million to the
iShares S&P Global Materials
$235 million to the
Select Sector SPDR TR SBI Int Energy
$207 million to the
iShares MSCI EAFE Index
(EFA), which boasts
(BHP) as one of its top holdings.
$156 million to the
SPDR Gold Trust
$116 million to the
Market Vectors Gold Miners ETF
$107 million to the
iShares S&P Global Energy
$83 million to the
Materials Select Sector SPDR
$79 million to the
U.S. Oil Fund
In addition to these allocations, the CIC has allocated $6.2 million to
(APC - Get Report)
, and $5.2 million to
(CHK - Get Report)
, which are holdings in XLE and IXC and indirectly influence their performance. Aggregately, CIC has invested nearly $420 million in energy based ETFs and nearly $450 million to ETFs that track metals and mining companies. Both of these commodity-based sectors are highly valuable to China in that the nation's appetite for foreign oil and materials is likely to increase, pushing up demand for both.
China is selling U.S. Treasuries and using these proceeds to reinvest in dollar-denominated securities via ETFs, making the nation's sovereign wealth fund a major player in the ETF landscape.
With over $2 trillion in foreign currency reserves, China is likely to continue this trend of buying ETFs due to its vested interest alone, being the driving force behind these appreciating equities.
An opportunity in these aforementioned ETFs exists; however, it is equally important to consider the inherent risks that they carry. A good way to mitigate these risks is through the implementation of an exit strategy that triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity. Such a strategy can be found at
Written by Kevin Grewal in Laguna Niguel, Calif.