The Securities and Exchange Commission filing of the U.S.-traded holdings in China's sovereign wealth fund reveals that the country is investing in ETFs.
The Chinese sovereign wealth fund, China Investment Corporation, revealed in the filing that about $9.6 billion of its estimated $300 billion of assets under management are in securities and funds traded in the U.S. Of this $9.6 billion, I calculate that $2.4 billion, or 25% of these assets, are in exchange-traded funds.
Most of the ETFs are either of the
Select Sector SPDR
variety, but investments were also made in
MarketVectors Gold Miners
The top ETF holding by value, to which China's sovereign wealth fund dedicates approximately $254 million, is
iShares S&P Global Materials Index Fund
. China clearly likes this sector and further exposes itself to it with some of its holdings of individual companies. Among the top equity holdings by value of the sovereign wealth fund are two companies that are prominent holdings in MXI,
China Investment Corporation's holdings in some of the ETFs represent quite a large chunk of total assets under management for these funds. In the case of MXI, the $254 million value of the shares bought by CIC represents 28% of the $912 million of total assets under management for the ETF, as of the end of 2009. This is not true of all the U.S.-traded ETFs that CIC holds, however, as its $79 million stake in
United States Oil Fund
is a lesser but still sizable 3% portion of the roughly $2.6 billion the ETF had under management as of Dec. 31.
It is clear from CIC's ETF allocation that it is bullish on ETFs that will benefit from China's own growth -- including China itself, with a position in
iShares FTSE/Xinhua China 25
. Adding the international index funds, FXI, and the material and energy ETFs in CIC's holdings together, they were valued at $1.2 billion, or half of the ETF total for the sovereign wealth fund. With these types of investments, the country is hedging itself against the price increases that growing demand from China places on commodities.
I think the ultimate lesson here is that the Chinese government, which administers CIC, finds ETFs an easy way to invest in the U.S. market. It also shows that the Chinese government is aware of the impact it has on world markets, making me more confident that the government will not make irresponsible announcements or unnecessary decisions that will spook markets or China-sensitive ETFs. Investors in volatile China-related material and energy ETFs can rest a little bit easier knowing that the Chinese government has a mutual investment interest.
At the time of publication, Dion was long QQQQ.
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.