New ETF Offers Direct Access to China's A-Shares

NEW YORK (TheStreet) -- The DB X-Trackers Harvest CSI 300 China A-Shares Fund (ASHR) is generating a stir in the exchange-traded fund universe, because it's the first ETF to own shares directly of Chinese A-shares.

Other ETFs, such as the PowerShares China A-Share Portfolio (CHNA) and the Market Vectors China ETF (PEK)
have offered exposure to these Chinese stocks, but only indirectly, via futures contracts.

It's not easy for non-Chinese investment firms to buy A-shares. They must be granted status as a qualified foreign institutional, and neither PowerShares nor Market Vectors enjoys that status.

There is a potential advantage, of course, in owning shares directly instead of owning futures contracts or other derivatives. There are no dividends from futures contracts. What's more, during market crises, owning futures contracts exposes an investor to counterparty risk.

ASHR and PEK both track the CSI 300 Index, so they offer exposure to the same stocks. Financials are the largest sector in ASHR and PEK, and make up 38% of ASHR. Industrial make up 13%, and consumer-discretionary stocks make up 11%.

The new DB fund has 300 holdings, so it does not take much single-stock risk. China Minsheng Bank is the largest holding in the fund at 4.2%. Fund provider Deutsche Asset & Wealth Management reports that the underlying index has a trailing dividend yield of 2.41%, which, after accounting for the fund's 1.08% expense ratio, could put the yield of the fund at 1.33%.

The expense ratio may seem high, but as noted above, accessing the Shanghai market is complicated and expensive, and investors who want that access are going to have to pay for it.

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