China now accounts for one-seventh of all global economic activity, but the rest of the world hasn’t given China it’s due. Domestic investors own 98 percent of all Chinese stocks and bonds, according to Bloomberg News, while China exposure is quite modest in most U.S. portfolios.
Yet it’s getting harder to ignore this fast-growing economy. The International Monetary Fund predicts the Chinese economy will grow 6.4 percent annually through 2021. A larger and more stable economy should also help give Chinese consumers a needed nudge. Their savings currently account for 46 percent of gross domestic product, fully 26 percentage points greater than the global average. As that figure starts to converge with global norms, domestic consumption—and the firms that serve consumers—should keep growing at an outsized pace.
With that in mind, here’s a look at 10 key Chinese ETFs which represent a diverse cross-section of Chinese ETFs available to global investors. Taken together, they cover all the bases of the Chinese economy. They are listed from smallest to largest in assets under management:
10. KraneShares MSCI One Belt One Road ETF (OBOR)
Expense ratio: 0.79 percent AUM: $3.8 million 3-yr. return: N/A
This fund was launched in September and is pegged to China’s grand plan to invest up to $500 billion in more than 60 emerging markets over the next five years, focusing mostly in Asia, the Middle East and Africa. Firms in the fund's portfolio are helping to finance and build large infrastructure projects including railroads, ports and highways. This fund taps into China’s grand geopolitical/geoeconomic plans.
9. Global X China Industrials ETF (CHII)
Expense ratio: 0.65 percent AUM: $4.1 million 3-yr. return: 12.3 percent
This is the only China ETF that squarely focuses on the nation’s all-important manufacturing sector, which accounts for roughly 40 percent of GDP. China is the world’s leading manufacturer of chemical fertilizers, cement, and steel. And it produces a growing roster of consumer goods brands that are found across Asia, Africa and Latin America.
8. KraneShares Zacks New China ETF (KFYP)
Expense ratio: 0.72 percent AUM: $6.3 million 3-yr. return: 14.3 percent
This fund has a timely focus as the National Congress of the Communist Party of China recently met to establish the next five year plan. The fund’s current mandate is to focus on “sectors highlighted in China's Five Year Plan such as technology, consumer staples, consumer discretionary, and health care.” The new plan may lead to a shifting sector emphasis for this fund as China’s priorities change.
7. WisdomTree China ex-State-Owned Enterprises Fund (CXSE)
Expense ratio: 0.32 percent AUM: $49.1 million 3-yr. return: 18.8 percent
State-owned firms still play an outsized role in the Chinese economy. But these aren’t usually very efficient firms says Gaurav Sinha, an asset allocation strategist at WisdomTree Investments. This fund’s stellar returns are based on a focus on the fast-growing and consumer and tech sectors. A relatively low expense ratio adds to the appeal.
6. Guggenheim China Small Cap ETF (HAO)
Expense ratio: 0.75 percent AUM: $102.2 million 3-yr. return: 9.5 percent
With nearly 1.4 billion citizens, the Chinese market rewards companies that can achieve massive scale. Smaller companies, in contrast, have been harder pressed to compete, as evidenced by this fund’s relative underperformance. Still, small firms represent great value, as the average holding in this fund trades for less than 11 times projected earnings, according to Morningstar. That compares to a 21.5 times forward multiple for shares in the U.S. small cap-focused iShares Russell 2000 ETF (IWM).
5. Global X China Consumer ETF (CHIQ)
Expense ratio: 0.65 percent AUM: $159.4 million 3-yr. return: 12.9 percent
Boston Consulting predicts that consumer spending in China will expand by $2 trillion by 2021. The current backdrop is equally bright: domestic consumption is rising at a 10 percent year-over-year pace, aided by consumer sentiment readings that are at a 17-year high.
4. Guggenheim China Technology ETF (CQQQ)
Expense ratio: 0.70 percent AUM: $304 million 3-yr. return: 22.6 percent
This is the lone China fund to garner a coveted five-star rating from Morningstar. Key stakes in tech juggernauts such as Tencent, Alibaba and Baidu have helped this fund gain more than 60 percent in 2017.
3. SPDR S&P China ETF (GXC)
Expense ratio: 0.59 percent AUM: $1.07 billion 3-yr. return: 14.4 percent
This broad-based fund is based on a float-adjusted, market capitalization weighted index, with a sector emphasis on technology, financial services and consumer cyclical stocks. Compared to the largest China large-cap funds, this SPDR fund carries a somewhat lower expense ratio.
2. KraneShares CSI China Internet (KWEB)
Expense ratio: 0.72 percent AUM: $1.12 billion 3-yr. return: 23.0 percent
This fund, along with the just-launched KraneShares Emerging Markets Consumer Technology ETF (KEMQ), offers exposure to the digitally-savvy Chinese consumer. The backdrop remains in place for strong gains ahead. Goldman Sachs sees Chinese e-commerce sales rising from $750 billion in 2016 to $1.7 trillion by 2020.
1. iShares MSCI China ETF (MCHI)
Expense ratio: 0.64 percent AUM: $2.64 billion 3-yr. return: 13.8 percent
A roughly 30 percent combined weighting in tech stars Tencent Holdings and Alibaba have helped this fund deliver a stunning 51 percent year-to-date return. That makes up for roughly flat returns over the prior four years
