Are you sure this is a good time to launch China-focused exchange-traded funds? It’s a logical question to ask Jay Jacobs, head of research and strategy at Global X Funds, which on Tuesday rolled out six China ETFs.
After all, the ongoing trade war between the U.S. and China hasn’t done either country’s stock market any favors. While the S&P 500 Index was down 1.3 percent year-to-date through Monday in part due to trade tensions, tariff talk and other factors have hammered Chinese stocks and dropped the Shanghai Composite nearly 22 percent this year.
Nonetheless, Global X is introducing a suite of five China sector ETFs and one large-cap fund that aim to provide investors with more flexibility in investing in the world’s second-largest economy.
“I genuinely think it’s a great time to be launching China-focused ETFs because all of the talk about slowing global growth, increasing political tension and trade wars drives a wedge between the returns of different sectors in China,” Jacobs says. “The whole thesis behind sector investing is that these stocks don’t trade as one. You’re not buying one and getting the whole China story; you’re getting a specific sliver of China that will behave differently depending on the macro economic environment.”
The five new sector ETFs comprise the following:
· Global X MSCI China Consumer Staples ETF (CHIS)
· Global X MSCI China Health Care ETF (CHIH)
· Global X MSCI China Information Technology ETF (CHIK)
· Global X MSCI China Real Estate ETF (CHIR)
· Global X MSCI China Utilities ETF (CHIU)
In addition, the company also launched the Global X MSCI China Large-Cap 50 ETF (CHIL), which targets the 50 largest securities in China by market capitalization. All six funds track MSCI indexes that can invest in China A, B and H shares, Red chips, P chips and foreign listings.
The new sector products join Global X’s existing roster of six China sector ETFs, and the entire suite of 11 funds corresponds with each of the eleven major economic sectors identified by the Global Industry Classification Standard, otherwise known as GICS, which was co-developed by MSCI and S&P Dow Jones Indices.
All 11 China sector funds have an expense ratio of 0.65 percent.
The older China sector funds—which launched between November 2009 and January 2010—cover the communications services, consumer discretionary, energy, financials, industrials and materials sectors.
From an asset gathering perspective, the most successful of the group is the Global X MSCI China Consumer Discretionary ETF (CHIQ), with $121 million in assets. That fund’s share price zoomed more than 67 percent last year, but it’s down more than 26 percent year-to-date.
Three of the existing Global X China sector funds have gathered just $3 million or less in assets, which is extremely low for funds that have been around for roughly nine or more years. Jacobs attributes that to having an incomplete product category.
“Before this launch we had only half of a sector suite, which made it harder for investors to fully incorporate these strategies,” Jacobs says. “Now that we have the full suite, investors will be able to do the same thing with sectors in China that they do in the U.S.”
Namely, he notes, that means having the option to follow long-term strategies in such areas as China communications, consumer discretionary and health care, or being more tactical by rotating between cyclicals and defensives.
Regarding the new Global X MSCI China Large-Cap 50 ETF, Jacobs describes it as a low-cost way to play China’s mega- and large-cap segments. The fund’s expense ratio of 0.29 percent is 45 basis points less than the comparable iShares China Large-Cap ETF (FXI), which is the largest China-focused ETF with assets of $5.8 billion.