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Sunrise Or Sunset For China?
Swine Influenza virus (H1N1) quarantines and the approaching one-year anniversary of the massive Szechuan earthquake are, with good reason, a few of the major headlines concerning China in recent weeks. Individual investors who once bombarded with news stressing China's influence on the world economy given its manpower, quest for natural resources and industrial capabilities, may be wondering if their international equity exposure should still include equities from this country set in the Far East. Let's take a look at a young China-focused ETF fund in order to get a handle on whether or not an investment in the region suits your appetite.
China Index Fund
Passive index funds are funds that try to track the returns from a benchmark index, like the S&P 500, which is tracked by the SPDRS S&P 500 Index ETF (NYSE:SPY). In the case of the Claymore/AlphaShares China Small Cap (NYSE:HAO), its goal is to track the AlphaShares China Small Cap index maintained by Standard & Poor's.
Variety of ADR Holdings
The HAO fund, created by AlphaShares, LLC, is comprised of only Mainland China companies like China's online community Netease.com (Nasdaq:NTES) and the New Oriental Education & Technology Group (NYSE:EDU). Netease.com has a beta of one and has returned 36% over the past 12 months ending on Friday, May 8. New Oriental Education & Technology has a higher beta of 1.3 and had a total return of -18.4% over the same time frame. Ctrip.com International (Nasdaq:CTRP), a provider of travel services in China, is another American Depository Receipt (ADR) listed on the index. Ctrip has a beta of 1.9 and it has a total return of -43.3% over the same 12-month time frame. In the area of news and entertainment Soho.com (Nasdaq:SOHU) with a beta of 1.3 and medical device maker Mindray Medical International (NYSE:MR) with its beta of 1.7 have each returned approximately -37% and -40% over the same time frame.
Red Chips
The good news for investors is the high level of diversification the fund offers since the highest percentage weight for any single holding is less than 3%. In addition to the ADRs mentioned above, the fund also holds several other Hong Kong listed securities and Red Chips. HAO's widespread diversification has helped the fund return 41.52% since the beginning of 2009 through to May 7, 2009.
Final Thoughts
Investments, not trades, are measured over years and not months. Short-term positive returns are always attractive, but an investors' interest in an investment must take into account the long-term performance results. Investors with an extended time horizon (three to five-years) and the stomach for volatility mixed with the possibility of positive future returns should consider a dollar cost averaging approach, if selecting and China focused ETF fund. (If you're interested in learning more about China, take a look at our article Investing In China.)
Passive index funds are funds that try to track the returns from a benchmark index, like the S&P 500, which is tracked by the SPDRS S&P 500 Index ETF (NYSE:SPY). In the case of the Claymore/AlphaShares China Small Cap (NYSE:HAO), its goal is to track the AlphaShares China Small Cap index maintained by Standard & Poor's.
Variety of ADR Holdings
The HAO fund, created by AlphaShares, LLC, is comprised of only Mainland China companies like China's online community Netease.com (Nasdaq:NTES) and the New Oriental Education & Technology Group (NYSE:EDU). Netease.com has a beta of one and has returned 36% over the past 12 months ending on Friday, May 8. New Oriental Education & Technology has a higher beta of 1.3 and had a total return of -18.4% over the same time frame. Ctrip.com International (Nasdaq:CTRP), a provider of travel services in China, is another American Depository Receipt (ADR) listed on the index. Ctrip has a beta of 1.9 and it has a total return of -43.3% over the same 12-month time frame. In the area of news and entertainment Soho.com (Nasdaq:SOHU) with a beta of 1.3 and medical device maker Mindray Medical International (NYSE:MR) with its beta of 1.7 have each returned approximately -37% and -40% over the same time frame.
The good news for investors is the high level of diversification the fund offers since the highest percentage weight for any single holding is less than 3%. In addition to the ADRs mentioned above, the fund also holds several other Hong Kong listed securities and Red Chips. HAO's widespread diversification has helped the fund return 41.52% since the beginning of 2009 through to May 7, 2009.
Final Thoughts
Investments, not trades, are measured over years and not months. Short-term positive returns are always attractive, but an investors' interest in an investment must take into account the long-term performance results. Investors with an extended time horizon (three to five-years) and the stomach for volatility mixed with the possibility of positive future returns should consider a dollar cost averaging approach, if selecting and China focused ETF fund. (If you're interested in learning more about China, take a look at our article Investing In China.)
by
Gregory S. Davis
Gregory is a freelance writer for Investopedia.com. He has a consulting background in the banking, telecommunications and healthcare fields. Gregory is a graduate of the Wharton School of Business. Click here to visit his website.
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