Best China ETFs
With the Chinese economy poised for long-term growth, the following exchange traded funds are the best ways to get in on the action.
The HAO ETF is composed of nearly 150 small, publicly traded mainland China companies with market capitalization under $1.5 billion. HAO's highest weighted sectors include 28% industrial materials, 19% consumer goods, and 12% business services. Many analysts agree that the best play in the Chinese economy is on smaller, privately owned companies whose success rests on the burgeoning middle-class. HAO is well-aligned with this strategy.
CQQQ is a technology ETF. All companies in this fund are classified as IT companies by the Standard and Poors. Sector holdings include: 49% telecommunications, 14% hardware, 13% consumer goods, 12% software, and 4% business services. With the great potential for upswing in China's consumer market and manufacturing, playing the technology sector could be a great bet.
CHIQ tracks the Chinese S-BOX consumer index, which covers 40 companies. Over 50% of the companies in CHIQ are directly involved in the consumer goods sector, with another 22% in consumer services, and 13% in business services. With the inevitable rise of the Chinese middle class, analysts predict a long-term growth in China's consumer goods market. CHIQ is the most direct consumer goods play.
CHII features 32 Chinese industrial companies, most of which are medium to large cap. Top holdings including: Weichai Power, Anhui Conch Cement Company, and China National Building Material. CHII's sector breakdown includes: 63% industrial materials, 25% business services, and 12% consumer goods. Over the past decade Chinese industry and manufacturing sectors have seen unpredicented growth. As China positions itself as the world's manufacturing center, and with still more room to grow, CHII might be the perfect China play.
FXI is the largest traded of all Chinese ETFs. Is consists of 25 of the largest Chinese companies, most of which are government owned and run. FXI holdings focus on three key sectors: 45% finance, 20%, and 18% telecommunications. Although FXI is the most popular and "blue-chip" of the China ETFs, many analysts worry about over-exposure to China's banking system and over-sized, government-run corporations.
The GXC spider is analogous to the US S&P 500, tracking the China S&P BMI Index. This ETF includes over 130 large-cap companies like China Life Insurance, PetroChina, and China Mobile. GXC holdings are heavily weighted towards finance. Sector coverage includes: 33% financial, 17% telecommunications, 15% energy, and 12% industrial materials. GXC is similar to FXI, but more diverse.
PGJ is an interesting EFT in that it only tracks companies with American Depository Reciepts. Companies in the PGJ are all traded on the US exchange but do the majority of their business in mainland China. The advantage here is tighter accountability and better oversight. PGJ's sector coverage is well-diversified: 26% telecommunications, 19% energy, and 17% business services.
TAO tracks the AlphaShare China Real Estate Index, which features companies developing or managing real estate in China, Hong Kong, and Macau. TAO exclusively focuses on real estate, with sector holdings divided 80% financial and 20% industrial materials. Given the recent US real estate bubble, investors are wary of a similar bubble in China, but so far analysts claim that fears over a Chinese bubble are overblown, perhaps a good buying opportunity.
CHIE tracks the S-BOX China Energy Index, with most holdings in either giant or large cap companies. CHIE's sector breakdown includes: 69% energy, 20% utilities, 7% hardware, and 5% industrial materials. With China on the verge of becoming the world's largest energy consumer, CHIE looks like a solid long-term play. As China's middle class grows and manufacturing expands, energy consumption is expected to double in the next 20 years.
CHIB features large and giant cap technology companies doing a majority of their business in mainland China. CHIB's sector breakdown includes: 60% telecommunications, 17% software, 14% hardware, and 9% business services. Top holdings include SINA, Tencent, Shanda, Lenovo, and Baidu. Given China's potential for long-term consumer and industrial growth, demand for IT infrastructure and services looks very promising.