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Steadier Ways to Play the China Rally

The WisdomTree fund uses a careful weighting system to insure diversification. The portfolio always includes assets in nine sectors, and no one sector can account for more than 25% of assets. No one stock can account for more than 10% of assets.

In each sector, stocks are weighted according to the total dividends that they pay. So companies with rich dividend streams dominate the fund. That could help to stabilize results because dividend payers tend to have reliable cash flows and solid balance sheets.

Holdings include China Mobile (CHL), a dominant cellular provider, and oil giant PetroChina .

WisdomTree research director Jeremy Schwartz argues that the outlook for the portfolio companies remains bright. "Growth in China could slow, but the prospects are still strong for many of the leading companies," he says.





Morningstar analyst Patricia Oey recommends SPDR S&P China (GXC), which has 29% of assets in financials. Holding $952 million in assets, the SPDR ETF owns stocks listed in Hong Kong and New York. The New York listings include such fast-growing technology stocks as Internet search giant Baidu (BIDU) and NetEase (NTES), which provides Internet portals and online games. In contrast, the iShares China fund focuses on stocks listed in Hong Kong and emphasizes big state-owned banks.

Oey also likes iShares MSCI Hong Kong (EWH), which has 26% of assets in financials. The ETF has $2.9 billion in assets. Instead of focusing on state-owned banks, the index concentrates on private banks that have more freedom to avoid bad loans. The financial holdings also include Hong Kong property developers that have been benefiting from growing demand for real estate.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
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