An SEC probe into U.S.-listed Chinese firms could put some ETF investors at risk.

U.S. listed Chinese ETFs fall into one of two categories: ETFs that track Chinese ordinaries or ETFs that track U.S.-listed Chinese companies (American depositary receipts and other receipts).

While the investigation is just starting, it is likely that the ETFs that would be the most impacted would be funds that fall into the latter category.

For example, the PowerShares Golden Dragon Halter USX China Portfolio Fund ( PGJ) is based on the Halter USX China Index, which is composed of the U.S.-listed securities of companies that derive a majority of their revenue from the People's Republic of China.

If the extent of the fraud suggested by this investigation turns out to be accurate, the SEC probe could conceivably impact the U.S.-listed Chinese firms at the core of PGJ. This kind of investigation could cause problems for PGJ's pricing and construction. Trading value could be negatively impacted, and investor fear could drive PGJ's trading value to a discount over the course of the investigation.

Until investors learn more about the extent of the SEC probe, it may be wise for ETF investors to avoid ETFs that track U.S.-listed Chinese firms.

It is less likely that ETFs that track Chinese ordinaries (stocks traded at exchanges in China and Hong Kong) would be impacted by this type of investigation.

It is important that investors check their portfolios and learn the difference between these two types of Chinese ETFs. While both types of these Chinese ETFs trade on U.S. exchanges, the big difference is that some of these ETFs track Chinese "ordinaries" (stocks traded on exchanges in China and Hong Kong) while some track U.S. -listed Chinese ADRs (Chinese companies with a dual listing on American stock exchanges). PGJ falls into the latter category, and the popular iShares FTSE China 25 Index Fund ( FXI) the former.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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