Since China has the world's second-largest economy, investing there is attractive for many reasons. China is growing rapidly, and as the exchange-traded funds (ETFs) below indicate, there are some impressive returns to be made. Of course, there are some equally large risks to navigate as well, including what the impact of the ongoing trade disputes could mean for these ETFs and the underlying companies. (See also: 4 Ways China Influences Global Economics.)
China ETFs may include companies listed in the United States as well as Hong Kong and Shanghai. In addition, two of these ETFs invest in derivatives, so investors should not consider these pure plays on Chinese stocks.
There is always risk in China of government intervention or manipulation, but using ETFs to invest there offers some protection. With a diversified set of stocks in an ETF, you are less likely to suffer from the behavior of one company. That said, the returns so far have been stellar.
The Chinese market is volatile, so investors need to be ready to ride out some ups and downs. This is especially true with leveraged ETFs. An ETF can fall as fast as it rises if the market turns sour. However, because ETFs can be traded like stocks, you can sell them fairly easily if you decide you want out.
We have selected three Chinese ETFs that offered strong returns through the end of 2017. However, so far in 2018, results have been more mixed. All of them rose in the first quarter and then sold off in the second and third quarters. Nonetheless, longer term, the outlook is positive, if you can stand the risk. All figures are current as of September 26, 2018.
YINN is a leveraged ETF. Because it seeks to beat the FTSE China 50 Index by 300%, it should be considered high-risk. The underlying index is made up of the 50 biggest Chinese companies trading on the Hong Kong Stock Exchange.
The index had rallied almost 50% in the first quarter of 2018, before retreating in the months since. Investors will have to decide if the ETF is a good buying opportunity after the recent selloff.
- Avg. Volume: 1,677,809
- Net Assets: $286.83 million
- Yield: 1.60%
- YTD Return: -31.07%
- Expense Ratio (net): 1.03%
XPP uses the FTSE China 50 Index as its benchmark. It invests in securities from that index, but it also may invest in derivatives. In other words, this is a leveraged ETF.
The fund tries to beat the underlying index by 200%. Of course, past performance does not guarantee future returns.
- Avg. Volume: 10,264
- Net Assets: $30.69 million
- Yield: 0.00%
- YTD Return: -18.76%
- Expense Ratio (net): 0.95%
This Chinese ETF tracks the Solactive China Materials Total Return Index. It aims to keep at least 80% of its assets invested in securities from that index.
It may invest in American Depositary Receipts (ADRs), as well as Global Depositary Receipts (GDRs). The focus is on the materials sector.
- Avg. Volume: 864
- Net Assets: $3.63 million
- Yield: 1.30%
- YTD Return: -13.63%
- Expense Ratio (net): 0.65%
The Bottom Line
China is an exciting place, financially speaking. Its growth is rapid, and investors are making money by investing there. However, there is still risk. The Chinese economy could stall, and the government meddles more in the markets than U.S. investors may be accustomed to.
Examine the China ETFs on this list to see if you want to put part of your portfolio in higher-risk investments. Know your risk tolerance and invest accordingly. Remember that leveraged ETFs can turn against you quickly if any of their derivatives turn out to be bad investments.