But what, you’re wondering, is that bright red line?  How do you get that?

That bright red line is the PowerShares Golden Dragon China Portfolio ETF (PGJ), which has been around since 2004 and has $312 million in assets.  PGJ is unusual in that it only holds US-listed shares of Chinese companies. These include ADRs for companies listed in China, as well as a number of companies that only list in the US.

PGJ severly underweights financials and energy, because none of the big government-owned firms are included in the index. Instead, the fund bulks up on technology, which is the largest sector at 46% of the fund. Its top holdings list is dominated by Chinese tech firms like Baidu, the Google of China, which only lists in New York and is not present in FXI at all. 

PGJ also tilts toward the entrepreneurial small-cap sector of China, with 40% of its portfolio focused on small or micro-caps. 

Just scan a comparison of PGJ’s top 10 holdings with those of FXI:


 

What should you do with China? Should you pile all your money into PGJ, forsaking the more traditional funds?

The answer, of course, is no. Just as PGJ has outperformed over the past six months, so too might it underperform over the next six.

But the comparison of FXI, GXC and PGJ does show you that owning China is not as simple as buying one fund and forgetting it.  Here’s my advice.

If you own FXI, you shouldn’t. FXI is an old-school fund that is too narrow and over-concentrated in government securities. If you want any exposure to the thriving consumer or technology sectors in China, FXI isn’t going to get it done. It’s liable to underperform the market in a meaningful way over the next 10 years, as the consumer economy surges and the government-dominated financial sector suffers under the weight of bad debt.

A better choice for broad-based exposure is GXC. With GXC, you cover your bases in China, capturing the important financial sector and other critical markets including consumers, technology and health care.  GXC – or its close competitor, the iShares MSCI China ETF (MCHI) – should anchor your Chinese exposure.