Friday the 13th was a lucky day in December 2019 for investors and market analysts anxiously watching the U.S.-China trade war. The news officially broke of a limited trade agreement that would roll back American levies on some Chinese goods to 7.5% (from 25%) and cancel an impending new set of tariffs. The phase-one deal also included China's commitment to buy more U.S. agricultural products, to protect U.S. firms operating in China, and to strengthen laws regarding intellectual property and technology and currency exchange.

Trade tensions or not, many U.S. exchange-traded funds (ETFs) remain interested in investing in China; in fact, a number of ETFs are focused exclusively on Chinese equities. For many of these funds, the fallout from the U.S.-China trade war has been disastrous (after 50% returns in 2017, they ended 2018 in the red), and the future could still be unsettled, despite this recent news. In this article, we take a closer look at some of the best—or in many cases, the least bad—ETF performers investing in Chinese companies right now.

All data is current as of Dec. 13, 2019.

key takeaways

  • Despite the U.S.-China trade war, some ETFs focused on Chinese stocks are performing well.
  • Some potential plays include the iShares China Large-Cap ETF, the SPDR S&P China ETF, the iShares MSCI China ETF, and the KraneShares Bosera MSCI China A Share ETF.
  • For a bearish play, the Direxion Daily CSI 300 China A Share Bear 1X Shares ETF is a possibility.

iShares China Large-Cap ETF (FXI)

In contrast to CHAD, the iShares China Large-Cap ETF (FXI) is one of the largest funds invested in China in the world, with assets of $4.27 billion and an average trading volume of nearly 24 million.

After a robust 2017, FXI faltered in 2018 (returns were a negative 12.41%) but it's up 6.05% YTD. Its NAV is $41.44 and it's yielding 2.13%.

FXI tracks 50 of the largest Chinese stocks traded on the Hong Kong Stock Exchange. It focuses on H-shares, P-chips, and Red Chips, as well as A-shares and other Chinese large-cap names, with over 45% of the portfolio weighted in financial services. The fund's three largest holdings are China Construction Bank Corp. (with a weight of close to 9%), Tencent Holdings (8.83%), and Ping An Insurance (8.01%).

SPDR S&P China ETF (GXC)

With $1.18 billion in assets under management (AUM), the SPDR S&P China ETF (GXC) focuses on a broad index of Chinese shares, seeking to mirror the performance of the S&P China BMI Index. GXC does not focus on market size, although the fund is cap-weighted, with large-caps receiving the largest share. Unsurprisingly, 2018 was rough—the fund lost 18.67%— but it's up 14.86% year-to-date. On a NAV of $99, it's yielding 2.06%.

GXC focuses on consumer cyclical, financial services, and communication services stocks. The fund's largest holding is the Alibaba Group, with a weight of 13.62% of the portfolio. Next up is Tencent Holdings, with 10.77%. A distant third is China Construction Bank Corporation, weighing in at 3.52%.

iShares MSCI China ETF (MCHI)

Like GXC, the iShares MSCI China ETF (MCHI) tracks an index—specifically, the MSCI China Index—of investable Chinese shares covering all market-cap sizes. Similarly, MCHI is also cap-weighted, although it tends to focus its investments on financials and technology.

It's worth noting that MCHI is about four times larger than GXC, asset-wise: It has over $4 billion in AUM. It too posted a loss in 2018 but is returning 15.88% so far in 2019. Its NAV is $61 and it has a yield of 1.48%.

The fund emphasizes the sectors as GXC, and in fact, MCHI's top three holdings are exactly the same as those of GXC, although they are weighted somewhat differently. Alibaba Group comes in first at just over 17%, followed by Tencent Holdings at 12.30%, then China Construction Bank Corporation at 3.87%.

KraneShares Bosera MSCI China A Share ETF (KBA)

As its name implies, the KraneShares Bosera MSCI China A Share ETF (KBA) tracks the MSCI China A Index (not to be confused with the aforementioned MSCI China Index), focusing on large- and mid-cap Chinese equities listed on the Shenzhen or Shanghai Stock Exchanges. It holds net assets of $533.54 million. KBA's strategy has netted it a 26.93% return this year—a nice bounceback from its 2018 loss of 26.25%—and a yield of 1.68%. The NAV is currently $31.

More varied than its fellow funds', KBA's portfolio focuses on the financial services, consumer defensive, industrial, and technology sectors. Top holdings include Kweichow Moutai Co. (5.23% weight), Ping An Insurance Group (3.34%), and China Merchants Bank (2.74%).

Direxion Daily CSI 300 China A Share Bear 1X Shares (CHAD)

When it's been a bad year for stocks, that probably means it's been a good year for inverse ETFs, which use various derivatives to profit from a decline in the value of an underlying benchmark. As the "bear" in the name suggests, holders of inverse exposure funds like the Direxion Daily CSI 300 China A Share Bear 1X Shares ETF (CHAD) see positive returns when stocks decrease in price. That is, the fund seeks to profit from the inverse of the performance of the CSI 300, an index comprised of the largest and most liquid stocks in the Chinese A-share stock market.

CHAD stands out for being the only China-focused ETF to win double-digit gains in 2018—the opposite of its fellow funds. Not surprisingly, as they've bounced back, its performance in 2019 has been rockier—it's down 24.37% year to date, though it's rallied a bit in November and December. On a NAV of $29, its yield is currently 3.41%.

CHAD is still a relatively small fund, with total net assets of just $20.86 million and an average volume of 12,309. With over one-third of the portfolio weighted towards the financial sector, the fund's top three holdings include Ping An Insurance Co. of China (7.62% of the portfolio), Moutai (4.66%), and Merchants Bank (2.89%).