Top 10 China ETFs

NEW YORK ( ETF Digest) -- China remains one of the world's fastest growing economies. It continues to intrigue and draw investors to it which began in earnest after 1979's Deng Xiaoping admonition "to grow rich is glorious." The high rate of economic growth has positive implications for investments opportunities. At the same time high rates of growth create inflationary pressures which can quickly cause turmoil and losses for linked equity markets.

Many pundits believe China's growth has led to inflation currently and excess speculation in real estate markets has created a bubble. Over the past 18 months, Chinese authorities have acknowledged this concern by tightening bank reserve requirements to reduce speculative lending. Plus, many bearish pundits believe a break in the real estate bubble will bring China's economy down.

As this update is being written the Chinese economy is contracting and there is much speculation whether the economy will suffer a "hard" or "soft" landing. No one has the answer for this including Chinese authorities. All we can see from our technical observations is equity markets are breaking down.  

There still remains a level of regulatory and corporate governance mistrust among some investors questioning the accuracy of accounting standards and enforcement. From a personal view, when I visited the recently opened stock exchange in Shanghai in 1992, our little group had a private session with the exchange Chairman. He was queried about this concern and responded by saying, "we will adopt American rules." Well, that may not give us much confidence.

There aren't many established ETFs beyond our list of 10. Some within the listing are new and have yet to be seasoned. Without question there will be many more issues coming forth as time passes and issuers are able to create new products especially linked to new sectors within the market.

We feature a technical view of conditions from monthly chart views when possible. Simplistically, we recommend longer-term investors stay on the right side of the 12-month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

For traders and investors wishing to hedge, leveraged and inverse issues are available to utilize from ProShares and Direxion and where available these are noted.

#10: iShares MSCI China ETF (MCHI)

MCHI follows the MSCI China Index which is the proprietary index measuring large-cap China equities. The fund was launched in March 2011. The expense ratio is .61%. AUM equal $400 million and average daily trading volume is 137.5K shares. As of late March 2012 the annual dividend yield was 2.38% and YTD return 8.90%. The one year return was not yet recordable.

As a new fund with little history it may surprise some to see AUM rise so quickly to over $400 million. This is the power of iShares marketing vs smaller providers. Nevertheless, the structure and weights are large-cap which gives investors a different exposure to an important market. In the end when viewing holdings you won't know too much difference here from FXI for example.

Data as of First Quarter 2012

MCHI Top Ten Holdings & Weightings
  1. China Mobile Ltd. (00941): 10.18%
  2. China Construction Bank Corp (00939): 7.22%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 5.97%
  4. CNOOC, Ltd. (00883): 5.74%
  5. PetroChina Co Ltd (00857): 4.61%
  6. Bank Of China Ltd. (03988): 3.68%
  7. Tencent Holdings Ltd. (00700): 3.35%
  8. China Life Insurance Co Ltd (02628): 3.24%
  9. China Petroleum & Chemical Corporation (00386): 3.02%
  10. China Shenhua Energy Company Limited (01088): 2.53%

#9: iShares China ETF (FCHI)

FCHI follows the FTSE China Hong Kong Listed Index which includes mid-cap and large-cap companies listed in Hong Kong. The fund was launched in June of 2008. The expense ratio is .72%. AUM equal $36 million and average daily trading volume is 7K shares. As of late March 2012 the annual dividend yield was 2.06% and YTD return 6.86%. The one year return was -12.10%.

The lower ranking is due to low trading volume and AUM making other choices perhaps more compelling. Holdings are similar to others above varying in weightings primarily. Note the heavy weights at top and making for perhaps too much concentration during poor overall periods. 

Data as of First Quarter 2012

FCHI Top Ten Holdings & Weightings
  1. China Mobile Ltd. (00941): 11.32%
  2. China Construction Bank Corp (00939): 9.77%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 7.51%
  4. CNOOC, Ltd. (00883): 6.08%
  5. Bank Of China Ltd. (03988): 5.97%
  6. PetroChina Co Ltd (00857): 5.11%
  7. China Life Insurance Company, Ltd. (02628): 3.58%
  8. China Petroleum & Chemical Corporation (00386): 3.40%
  9. Ping An Insurance Group (PIAIF): 3.02%
  10. China United Network Communications Ltd. (00762): 2.95%

 

#8: Global X China Consumer ETF (CHIQ)

CHIQ follows the Solactive China Consumer Index which includes companies domiciled in China which have a consumer orientation. The fund was launched in November 2009. The expense ratio is .65%. AUM equal $139 million and average daily trading volume is 121K shares. As of late March 2012 the annual dividend yield was.36% and YTD return 10.50%. The one year return was -10.59%.

This fund seeks to take advantage of the fast growing consumer sector in China. With its large upwardly mobile population the obvious demand for better goods and services is only natural. Pockets of wealth are present in large cities whereas such is still not the case in rural and remote areas of the country.

Data as of First Quarter 2012

CHIQ Top Ten Holdings & Weightings
  1. Hengan International Group Co., Ltd. (01044): 5.74%
  2. Want Want China Holdings Limited (WWNTF): 5.65%
  3. Tingyi (Cayman Islands) Holding Corp. (TCYMF): 5.57%
  4. Dongfeng Motor Group Co Ltd (00489): 5.55%
  5. China Resources Enterprise Ltd. (00291): 4.86%
  6. New Oriental Education & Technology Group Inc. ADR (EDU): 4.19%
  7. Guangzhou Automobile Group Co., Ltd. (02238): 3.97%
  8. GOME Electrical Appliances Holding Ltd. (GMELF): 3.87%
  9. Focus Media Holding, Ltd. ADR (FMCN): 3.80%
  10. China Yurun Food Group Ltd. (01068): 3.80%

 

#7: Guggenheim China All-Cap ETF (YAO)

YAO follows the AlphaShares China All-Cap Index which includes companies with market capitalizations greater than $500 million. The fund was launched in October 2009. The expense ratio is .70%. AUM equal $58 million and average daily trading volume is 14K shares. As of late March 2012 the annual dividend yield was 2.41% and YTD return 11.05%. The one year return was -12.65%.

Weightings in the holdings are well-balanced and perform similarly with others in the sector. The ETF has a shorter history than some of its peers. This accounts for lower AUM and trading volume.

Data as of First Quarter 2012

YAO Top Ten Holdings & Weightings
  1. Baidu, Inc. ADR (BIDU): 6.48%
  2. China Mobile Ltd. (00941): 5.96%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 4.96%
  4. CNOOC, Ltd. (00883): 4.71%
  5. China Construction Bank Corp (00939): 4.70%
  6. PetroChina Co Ltd (00857): 4.66%
  7. Tencent Holdings Ltd. (00700): 3.42%
  8. Bank Of China Ltd. (03988): 3.36%
  9. China Life Insurance Co Ltd (02628): 3.31%
  10. China Petroleum & Chemical Corporation (00386): 3.06%

 

#6: Van Eck China CSI 300 ETF (PEK)

PEK follows the important CSI 300 Index which consists of 300 A-Share stocks listed on the Shenzen or Shanghai Stock Exchange. The fund was launched in October 2010. The expense ratio is 72. AUM equal $20 million and average daily trading volume is less than 8K shares. As of late March 2012 the annual dividend yield was unavailable and YTD return 13.56%. The one year return was -20.07%.

This is an important and unique new issue; but, there is a problem for investors. The fund needs a license and permission from China regulators to buy share constituents of the index. So the fund has a derivative swap arrangement with Credit Suisse which provides exposure to the CSI 300 Index but at a price. (And, currently these swap arrangements with Credit Suisse have been undone with TVIX as you might recall.) Therefore, and until permission is granted, the fund trades at a substantial premium (currently over 7%) to the index. This is off-putting to investors but it's the only way foreign investors can gain exposure to this most important internal Chinese index. Van Eck is betting eventually permission will be granted and they will have the benefit of being first to the space. We look forward to permission being granted, and in the meantime, it's a "place-holder" for them vs an investment for you.)

 

#5: Guggenheim China Small-Cap ETF (HAO)

HAO follows the AlphaShares China Small Cap Index which is a proprietary measure of companies is China with a minimum market capitalization of $200 million to a maximum of $1.5 billion. The fund was launched in January 2008. The expense ratio is .70%. AUM equal $170 million and average daily trading volume is 104K shares.

As of late March 2012 the annual dividend yield was 2.82% and YTD return 12.64%. The one year return was -22.51%.

Small-caps have higher beta (volatility) and will outperform generally on the upside but underperform when conditions are more bearish.

Data as of First Quarter 2012

HAO Top Ten Holdings & Weightings
  1. Mindray Medical International Limited ADR (MR): 2.37%
  2. Tsingtao Brewery Co., Ltd. (TSGTF): 1.63%
  3. Guangdong Investment Ltd. (00270): 1.61%
  4. Zhaojin Mining Industry Co. Ltd. (01818): 1.57%
  5. Great Wall Motor Co., Ltd. (02333): 1.48%
  6. China BlueChemical Ltd. (03983): 1.46%
  7. Yingde Gases Group Co., Ltd. (2168): 1.44%
  8. China Shanshui Cement Group Limited (00691): 1.42%
  9. SOHO China Limited (00410): 1.30%
  10. China Everbright Ltd. (00165): 1.29%

 

#4: PowerShares Golden Dragon ETF (PGJ)

PGJ follows the Halter USX China Index which is comprised of U.S.-listed securities of companies that derive a majority of their revenue from China. The fund was launched in December 2004. The expense ratio is .60%. AUM equal $253 million and average daily trading volume is 39K shares. As of late March 2012 the annual dividend yield was 2.16% and YTD return 10.73%. The one year return was -18.29%.

With holdings in PGJ you'll note a more equally weighted array of constituents.  This can be good or bad dependent on movements of ETFs with higher weights in some holdings. Nevertheless PGJ was one of the earlier issues in this space and has done reasonably well by comparison. 

Data as of First Quarter 2012

PGJ Top Ten Holdings & Weightings
  1. CNOOC, Ltd. ADR (CEO): 5.26%
  2. China Life Insurance Co Ltd ADR (LFC): 5.03%
  3. China Petroleum & Chemical Corporation ADR (SNP): 4.89%
  4. PetroChina Co Ltd ADR (PTR): 4.81%
  5. Yanzhou Coal Mining Company Limited ADR (YZC): 4.73%
  6. Baidu, Inc. ADR (BIDU): 4.61%
  7. China Unicom (Hong Kong) Ltd ADR (CHU): 4.52%
  8. Huaneng Power International Inc. ADR (HNP): 4.50%
  9. China Mobile Ltd. ADR (CHL): 4.46%
  10. China Telecom Corp Ltd ADR (CHA): 4.24%

 

#3: SPDR S&P China ETF (GXC)


GXC follows the S&P China BMI Index which is a market capitalization weighted index of companies traded in China available to foreign investors. The fund was launched in March 2007. The expense ratio is .59%. AUM equal $887 million and average daily trading volume is 221K shares. As of late March 2012 the annual dividend yield was 1.88% and YTD return 10.13%. The one year return was -10.62%.

Some believe GXC has a more representative view of the contemporary China investing scene but that may or may not be the case. Viewing the holdings indicate similarities in structure with FXI for example.

Data as of First Quarter 2012

GXC Top Ten Holdings & Weightings
  1. China Mobile Ltd. (00941): 7.67%
  2. China Construction Bank Corp (00939): 7.49%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 5.09%
  4. Baidu, Inc. ADR (BIDU): 4.77%
  5. CNOOC, Ltd. (00883): 4.20%
  6. PetroChina Co Ltd (00857): 4.03%
  7. Bank Of China Ltd. (03988): 3.52%
  8. Tencent Holdings Ltd. (00700): 2.99%
  9. China Life Insurance Company, Ltd. (02628): 2.81%
  10. China Petroleum & Chemical Corporation (00386): 2.73%

#2: iShares Hong Kong ETF (EWH)

EWH follows the MSCI Hong Kong Index which is a proprietary measure of the entire Hong Kong equity market. The fund was launched in March 1996 and is the granddaddy of all China-based funds. The expense ratio is .53%. AUM equal $1.8 billion and average daily trading volume is 5.1M shares. As of late March 2012 the annual dividend yield was 2.31% and YTD return 13.38%. The one year return was -2.93%.

It's popular to think of Hong Kong as not being China but it certainly is and became so in the 1007 handover from the British. It does have its own currency (for now) and is considered a special economic zone within China. Hong Kong markets used to be dominated almost exclusively by property and financial sectors, but that is no longer the case as one look at the holdings reveals. Nevertheless, property remains important to the main exchange index ($HSI) overall. Property is very closely controlled by HK authorities which keeps prices high overall in a small land area.

Data as of First Quarter 2012

EWH Top Ten Holdings & Weightings
  1. China Mobile Ltd. (00941): 9.48%
  2. China Construction Bank Corp (00939): 9.12%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 8.36%
  4. CNOOC, Ltd. (00883): 7.57%
  5. Bank Of China Ltd. (03988): 6.17%
  6. PetroChina Co Ltd (00857): 4.36%
  7. Ping An Insurance Group (PIAIF): 4.28%
  8. China Life Insurance Company, Ltd. (02628): 4.27%
  9. China Merchants Bank Co., Ltd. (03968): 3.99%
  10. Agricultural Bank of China Ltd. (01288): 3.99%

#1: iShares China 25 Index ETF (FXI)

FXI follows the FTSE China 25 Index which measures the performance of the largest companies in the China equity market. The fund was launched in October 2004. The expense ratio is .72%. AUM equal nearly $6 billion and average daily trading volume is 24M shares. As of late March 2012 the annual dividend yield was 2.05% and YTD return 5.79%. The one year return was -12.97%.

Many investors don't believe this is the best ETF for overall Chinese investment exposure given its limited breadth and narrow number (25) constituents. Nevertheless it remains a popular a good trending market.

 

ProShares each have inverse and leveraged products available for those wishing to hedge or speculate.

Data as of First Quarter 2012

FXI Top Ten Holdings & Weightings
  1. China Mobile Ltd. (00941): 10.12%
  2. China Construction Bank Corp (00939): 8.83%
  3. Industrial And Commercial Bank Of China Ltd. (01398): 7.89%
  4. CNOOC, Ltd. (00883): 6.73%
  5. Bank Of China Ltd. (03988): 6.08%
  6. PetroChina Co Ltd (00857): 4.18%
  7. China United Network Communications Ltd. (00762): 4.13%
  8. China Merchants Bank Co., Ltd. (03968): 4.10%
  9. China Petroleum & Chemical Corporation (00386): 4.05%
  10. China Shenhua Energy Company Limited (01088): 4.02%

We rank the top 10 ETF by our proprietary stars system as outlined below. If an ETF you're interested in is not included but you'd like to know a ranking send an inquiry to support@ETFDigest.com and we'll attempt to satisfy your interest.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

Other ETFs stand-out as possible inclusions in the future including: CHXX (EG Shares China Infrastructure ETF); CHIE (Global X China Energy ETF); CHIX (Global X Financials ETF); CHII (Global X China Industrials ETF) and CHIM (Global X China Materials ETF).

ETF choices from China will continue to rapidly increase. Sometimes these offerings will need seasoning before investors can verify performance trends and validate investing in them. We've chosen to feature some that may be repetitive but clearly have something to offer as well. Some other Top 10 lists we've published may have similar ETFs within them and can become duplicative but we'll just have to live with this on occasion.

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs.

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

You may address any feedback to: feedback@etfdigest.com   

The opinions and/or guidance provided herein should not be construed as investment advice and are merely the general opinion of the ETF Digest.

The ETF Digest has a lazy position in FXI.

(Source for data is from ETF sponsors and various ETF data providers)

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