NEW YORK (
) -- With tensions coming to a boil in the dispute between
and China, ETF investors may find a China Technology ETF to be a good way to play the domestic firms that will benefit in the absence of the search giant.
This week, the battle between Google and China escalated to a new level. Although it was previously rhetorical, the search giant took action on Monday in an attempt to override the Chinese government's ability to censor its search results.
Web surfers looking to search Google's China homepage, Google.cn, were forwarded to the uncensored Hong Kong landing page,
. By Tuesday, however, the government managed to continue to block China's 390 million Internet users from searching controversial topics such as Tiananmen Square.
In light of Google's action, a number of the company's partners, including telecom giants, are mulling the possibility of pulling out of their respective deals with the search giant. Even Hong Kong billionaire, Li Ka-shing, has gotten involved in the dispute, dropping Google as the main search engine for his Tom Online Website.
Since the conflict between these two titans came to a boil at the beginning of January, investors looked to domestic Chinese Internet companies including
to benefit from Google's absence.
Sure enough, Baidu, China's dominant search engine company, has seen impressive gains throughout the ordeal. Year to date through March 23, Google shares have dipped 11% while shares of BIDU have gained 44%. Sohu has fallen 5%, and NetEase has gained 3%.
Given the excitement surrounding these Internet companies, now may be an ideal time for investors to pay attention to the dominant China tech ETF on the market.
Although ETF investors looking for access to China have traditionally been directed toward large-cap instruments such as
iShares FTSE/Xinhua China 25 Index Fund
or small-cap funds like the
Claymore/AlphaShares China Small Cap ETF
, a number of new China funds have provided investors with sector exposure to the country, including tech.
Currently, there are two Chinese technology ETFs: the
Claymore/AlphaShares China Technology ETF
GlobalX China Technology ETF
( CHIB). Although both provide ample exposure to a broad array of tech firms including Baidu and Sohu, their performance throughout 2010 has diverged considerably. Investors holding GlobalX's CHIB fund have seen considerable underperformance. Year to date through March 23, CHIB has gained 2% while CQQQ has gained 6%.
One reason for CHIB's lagging return is the 13% exposure to the Chinese telecom industry. While the combined performance of
hasn't been bad this year, the allocation to these companies has reduced the fund's exposure to faster growing Internet firms.
Comparatively, CQQQ lacks exposure to any of the three telecom companies.
Instead of playing China's telecom goliaths, CQQQ devotes larger portions of its portfolio to more popular and fast-moving firms. For instance, not only does CQQQ's nearly 10% exposure to Baidu trump CHIB's 7% position, but CQQQ also has exposure to BYD, the popular electric car company partially owned by
. BYD accounts for more than 7% of the Claymore offering while, in CHIB, the company is absent.
With both parties now taking action, there is a good chance that the China/Google dispute will rage on. Investors looking for the best way to play this ongoing battle should turn their attention to CQQQ.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion was not long any equities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.