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 Basics

    Explaining Trade Liberalization

    Trade liberalization is the process of removing or reducing obstacles that impede the exchange of goods and services between nations.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Nasdaq Biotech

    Obtain information about an ETF offerings that provides leveraged exposure to the biotechnology industry, the ProShares UltraPro Nasdaq Biotech Fund.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Europe Financials

    Learn about the iShares MSCI Europe Financials fund, which invests in numerous European financial industries, such as banks, insurance and real estate.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Insurance

    Learn about the SPDR S&P Insurance exchange-traded fund, which follows the S&P Insurance Select Industry Index by investing in equities of U.S. insurers.
  6. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Small Cap

    Learn about the SPDR S&P Emerging Markets Small Cap exchange-traded fund, which invests in small-cap firms traded at the emerging equity markets.
  7. Mutual Funds & ETFs

    ETF Analysis: ETFS Physical Platinum

    Learn about the physical platinum ETF. Platinum embarked on a bull market from 2001 to 2011, climbing to record prices along with other precious metals.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI Turkey

    Learn about the iShares MSCI Turkey exchange-traded fund, which invests in a wide variety of companies' equities traded on Turkish exchanges.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  10. Mutual Funds & ETFs

    ETF Analysis: Guggenheim Enhanced Short Dur

    Find out about the Guggenheim Enhanced Short Duration ETF, and learn detailed information about this fund that focuses on fixed-income securities.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  5. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  6. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!