Investors seeking exposure to the Hong Kong stock market might consider exchange-traded funds (ETFs). Hong Kong has long thrived as a global financial center and open capitalist economy, and it largely has continued to do so since it became a semi-autonmous region of China in 1997. Beijing initially allowed Hong Kong to maintain its Western-style political system under the central government's "one country, two systems" approach. But now, rising political unrest and Beijing's rapidly tightening control over democratic freedoms in Hong Kong threaten the former British colony's political and economic autonomy. These developments are raising questions over its future role as a global financial hub. At least for now, Hong Kong remains open for business and investor capital. In this environment, Hong Kong ETFs offer investors a way to gain diversified exposure to a leading financial center in the global economy.
- Hong Kong equities underperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are FLHK, ZHOK, and EWH.
- The top holding for each of these ETFs is AIA Group Ltd.
There are 3 distinct Hong Kong ETFs that trade in the U.S., excluding inverse and leveraged ETFs. Hong Kong equities, as measured by the MSCI Hong Kong Index, have underperformed the broader market with a total return of 6.6% over the past 12 months compared to the S&P 500's total return of 18.4%, as of November 16, 2020. The best-performing Hong Kong ETF, based on performance over the past year, is the Franklin FTSE Hong Kong ETF (FLHK). We examine all 3 Hong Kong ETFs below. All numbers below are as of November 17, 2020.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.
- Performance over 1-Year: 8.1%
- Expense Ratio: 0.09%
- Annual Dividend Yield: 2.65%
- 3-Month Average Daily Volume: 2,686
- Assets Under Management: $14.9 million
- Inception Date: November 2,2017
- Issuer: Franklin Templeton Investments
FLHK tracks the FTSE Hong Kong Capped Index, a market-cap-weighted index representing the performance of large- and mid-cap Hong Kong-listed stocks. The ETF follows a blended strategy, providing exposure to a mix of growth and value stocks at a relatively low cost. Of its 91 holdings, 89% are domiciled within Hong Kong, followed by 8% in China, and 2% in Macao. The fund's largest exposure is to the financial sector (37%), followed by real estate (21%), and industrials (13%). Its top three holdings include AIA Group Ltd. (1299:HKG), a provider of insurance and financial services; Hong Kong Exchanges & Clearing Ltd. (388:HKG), an owner and operator of stock and futures markets; and Sun Hung Kai Properties Ltd. (16:HKG), a holding company engaged in the development of property for sale and investment.
- Performance over 1-Year: 7.7%
- Expense Ratio: 0.14%
- Annual Dividend Yield: 2.28%
- 3-Month Average Daily Volume: 1,239
- Assets Under Management: $14.1 million
- Inception Date: September 18, 2018
- Issuer: State Street SPDR
ZHOK tracks the Solactive GBS Hong Kong Large & Mid Cap Index, a free float-adjusted market cap index designed to capture the market performance of large- and mid-cap companies listed in Hong Kong. The ETF follows a blended strategy, investing in a mix of value and growth stocks. Companies domiciled in Hong Kong receive the largest exposure, accounting for 87% of the fund's 52 holdings. China-based equities receive a 13% weighting. By sector, financials receive the greatest allocation (38%), followed by real estate (18%), and industrials (12%). The fund's top three holdings include AIA Group; Hong Kong Exchanges & Clearing; and Sun Hung Kai Properties.
- Performance over 1-Year: 6.2%
- Expense Ratio: 0.49%
- Annual Dividend Yield: 2.62%
- 3-Month Average Daily Volume: 6,119,797
- Assets Under Management: $1.2 billion
- Inception Date: March 12, 1996
- Issuer: iShares
EWH is by far the largest and most liquid of the 3 Hong Kong ETFs we examine, but also the most expensive. This ETF tracks the MSCI Hong Kong 25/50 Index, an index designed to gauge the performance of the large- and mid-cap segments of the Hong Kong equity market. It follows a blended strategy, holding both value and growth stocks. Geographically, essentially all of the fund's 40 holdings are domiciled in Hong Kong. Insurance companies comprise 25% of the portfolio, followed by real estate (20%), and diversified financials (12%). The fund's top three holdings are AIA Group; Hong Kong Exchanges & Clearing; and Sun Hung Kai Properties.
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