China exchange-traded funds (ETFs) offer a way for investors to geographically diversify their portfolios by owning a basket of companies in the world's second-largest economy. Despite the large number of state-owned Chinese enterprises, there are still many companies whose shares are publicly traded and provide investors with opportunities. China ETFs own companies such as Alibaba Group Holding Ltd. (BABA), Ping An Insurance Group Co. of China Ltd. (601318), and China Yangtze Power Co. Ltd. (600900). Current risks facing China ETFs include the effects of the coronavirus pandemic on an already slowing economy and ongoing U.S.-China trade tensions.

Key Takeaways

  • Chinese equities outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are CHIQ, KWEB, and CXSE.
  • The top holding of each of these ETFs is Alibaba Group Holding.

The China ETF universe is comprised of about 14 distinct ETFs, excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). Chinese equities, as measured by the MSCI China Index, have outperformed the broader market with a total return of 35.7% over the past 12 months compared to the S&P 500's total return of 9.4%, as of October 30, 2020. The best-performing China ETF for Q1 2021, based on performance over the past year, is the Global X MSCI China Consumer Discretionary ETF (CHIQ). We examine the top 3 best China ETFs below. All numbers reported below are as of November 2, 2020.

Global X MSCI China Consumer Discretionary ETF (CHIQ)

  • Performance over 1-Year: 69.6%
  • Expense Ratio: 0.65%
  • Annual Dividend Yield: 0.53%
  • 3-Month Average Daily Volume: 207,741
  • Assets Under Management: $390.4 million
  • Inception Date: November 30, 2009
  • Issuer: Global X

CHIQ tracks the Solactive China Consumer Index, which is designed to reflect the performance of China's consumer sector, including companies that are either domiciled in China or have their main business operations in China. The ETF is focused on large- and mid-cap equities in the consumer discretionary sector of the Chinese economy. It follows a blended strategy of investing in a mix of value and growth stocks. The fund's top three holdings include Alibaba Group Holding, JD.Com Inc. (JD), and Meituan Dianping (3690:HKG), all three of which are technology companies offering e-commerce platforms.

KraneShares CSI China Internet ETF (KWEB)

  • Performance over 1-Year: 60.0%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: 0.06%
  • 3-Month Average Daily Volume: 2,033,555
  • Assets Under Management: $3.3 billion
  • Inception Date: July 31, 2013
  • Issuer: KraneShares

KWEB tracks the CSI China Overseas Internet Index, which is seeks to measure the performance of China-based publicly traded companies engaged in providing Internet-related products and services. The ETF offers pure play exposure to China's software and information technology sector. It invests in equities across the market-cap spectrum and follows a blended strategy, investing in both growth and value stocks. The fund's top three holdings include Alibaba Group Holding; Tencent Holdings Ltd. (700:HKG), a multinational technology company; and Meituan Dianping.

WisdomTree China ex-State-Owned Enterprises Fund (CXSE)

  • Performance over 1-Year: 59.8%
  • Expense Ratio: 0.32%
  • Annual Dividend Yield: 0.89%
  • 3-Month Average Daily Volume: 88,752
  • Assets Under Management: $441.7 million
  • Inception Date: September 19, 2012
  • Issuer: WisdomTree

CXSE tracks the WisdomTree China ex-State-Owned Enterprises Index, which is designed to measure the performance of Chinese stocks that are not state-owned enterprises (SOE). The ETF invests in stocks across China's large-cap equity market, but excludes companies whereby the government owns more than 20% of outstanding shares. More than half of the fund's holdings fall within either the consumer discretionary sector or the communication services sector. The fund's top three holdings include Alibaba Group Holding; Tencent Holdings; and Meituan Dianping.

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