Investing in China has been a hot topic for years and will be for many more to come. Considering the country's latest GDP growth came in at a whopping 11.9%, how can it be ignored by investors? Even during the global recession years of 2008 and 2009 China was able to post solid growth numbers with a GDP of 9.13% in 2008 and 8.48% in 2009.

IN PICTURES: 10 Reasons To Add ETFs To Your Portfolio

There are a number of ways investors could gain exposure to the China growth in their portfolio. The two most popular are Chinese companies that trade as ADRs on U.S. stock exchanges and Chinese exchange-traded funds (ETFs). Due to the company-specific risk of investing in individual stocks, the best strategy for most investors is Chinese ETFs. (For a quick refresher on this topic: check out ADR Basics: What Is An ADR?)

Broad-Based China ETFs
The largest Chinese ETF, as measured by assets under management, is the iShares FTSE/Xinhua China 25 ETF (NYSE:FXI). The ETF invests in 25 large-cap Chinese stocks that either trade in the U.S. or Hong Kong.

The largest holding is China Mobile (NYSE:CHL) with 10% of the allocation. Financials make up 45.4% of the ETF and China Construction Bank is the number two holding with a 9% allocation. Because the ETF only invests in 25 stocks and the top two holdings make up 19%, the ETF is not considered diversified and therefore the risk is higher than a typical ETF. That being said, FXI is a solid proxy for the large-cap Chinese stock market and an acceptable option for most investors. (For more, see Investing In China.)

Other broad-based China ETFs include the SPDR S&P China ETF (NYSE:GXC) and PowerShares Golden Dragon USX China ETF (NYSE:PGJ).

Sector ETFs
During the last year a number of ETF companies introduced Chinese sector-specific ETFs. Now investors have the opportunity to invest in sectors such as financials or technology similar to U.S. sector ETFs. The Global X family of ETFs is the leader with six Chinese sector ETFs; their largest by assets under management is the Global X China Financials ETF (NYSE:CHIX). The ETF is composed of 25 stocks that have their main business operations in China and only securities that are tradable for foreign investors without restrictions are included. The expense ratio is an acceptable 0.65%.

Investors have a choice if they want to invest in the Chinese technology sector. There is the Global X China Technology ETF (NYSE:CHIB) or the Claymore China Technology ETF (NYSES:CQQQ). CHIB invests in a number of Chinese stocks that trade in the U.S. as ADRs such as China Unicom (NYSE:CHU) and Baidu.com (Nasdaq:BIDU). CQQQ has many of the same holdings as its competitor and they both charge similar expense ratios; 0.65% for CHIB and 0.70% for CQQQ.

Favorite China Sector ETF
Of the remaining Chinese sector ETFs there is one that stands out above the rest due to its exposure to the growing middle class - the Global X China Consumer ETF (NYSE:CHIQ). The ETF allows investors to take advantage of the growth of the China consumer through retail, food, consumer services and automobiles. What also makes this ETF unique from many other China ETFs is that it relies more on the economy of mainland China and not foreign nations. My bet here is that the growth in China continues and the middle class benefits.

The Bottom Line
Keep in mind that there will be high volatility with sector ETFs and especially the ones that concentrate on an emerging economy such as China. (For more, see China ETFs Move With The Market.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Stock Analysis

    Analyzing Sirius XM's Return on Equity (ROE) (SIRI)

    Learn more about the Sirius XM's overall 2015 performance, return on equity performance and future predictions for the company's ROE in 2016 and beyond.
  6. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  7. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  8. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  9. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  10. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
RELATED FAQS
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  4. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  5. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  6. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center