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 Tencent Holdings Ltd. (700), Ping An Insurance Group Co. of China Ltd. (601318), and China Yangtze Power Co. Ltd. (600900).

Certain Chinese stocks have been delisted by the New York Stock Exchange (NYSE) after an executive order signed by former U.S. President Donald Trump in November 2020 banned U.S. investors from investing in Chinese companies with alleged ties to the Chinese military. Despite a new U.S. administration led by President Joe Biden, ongoing trade tensions between the U.S. and China continue to pose risks to investors in China-based assets.

Key Takeaways

  • Chinese equities underperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are KGRN, CHIQ, and KURE.
  • The top holdings of these ETFs are class A shares of Contemporary Amperex Technology Co. Ltd., sponsored ADRs of Alibaba Group Holding Ltd., and WuXi Biologics (Cayman) Inc., respectively.

There are 18 China ETFs that trade in the U.S., 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 underperformed the broader market with a total return of 42.0% over the past 12 months compared to the S&P 500's total return of 49.0%, as of May 4, 2021. The best-performing China ETF for Q3 2021, based on performance over the past year, is the KraneShares MSCI China Clean Technology Index ETF (KGRN). We examine the top 3 best China ETFs below. All numbers reported below are as of May 5, 2021.

KraneShares MSCI China Clean Technology Index ETF (KGRN)

  • Performance over 1-Year: 129.4%
  • Expense Ratio: 0.79%
  • Annual Dividend Yield: 0.01%
  • 3-Month Average Daily Volume: 101,705
  • Assets Under Management: $145.8 million
  • Inception Date: Oct. 13, 2017
  • Issuer: KraneShares

KGRN tracks the MSCI China IMI Environment 10/40 Index, which gauges the performance of Chinese securities that generate at least 50% of their revenues from environmentally beneficial products and services. The ETF provides exposure to 46 companies poised to benefit from China's increasing investments in clean energy technologies. It follows a blended strategy, investing in a mix of growth and value stocks with a range of market capitalizations. The fund's top three holdings include class A shares of Contemporary Amperex Technology Co. Ltd. (300750:SHE), a battery manufacturer and technology company; class A sponsored ADRs of NIO Inc. (NIO), a holding company that designs and manufactures electric vehicles; and Xinyi Solar Holdings Ltd. (968:HKG), a manufacturer of solar photovoltaic glass.

Global X MSCI China Consumer Discretionary ETF (CHIQ)

  • Performance over 1-Year: 92.8%
  • Expense Ratio: 0.65%
  • Annual Dividend Yield: 0.12%
  • 3-Month Average Daily Volume: 324,577
  • Assets Under Management: $677.9 million
  • Inception Date: Nov. 30, 2009
  • Issuer: Global X

CHIQ tracks the MSCI China Consumer Discretionary 10/50 Index, which gauges the performance of large- and mid-cap Chinese consumer discretionary securities. The ETF provides exposure to the consumer discretionary segment of the Chinese economy. It is comprised of 80 securities and follows a blended strategy, investing in both value and growth stocks. The fund's top three holdings include sponsored ADRs of Alibaba Group Holding Ltd. (BABA), a provider of e-commerce, internet infrastructure, online financial, and internet content services; class B shares of Meituan (3690:HKG), an e-commerce platform; and class A sponsored ADRs of JD.com Inc. (JD), an e-commerce company and retail infrastructure provider.

KraneShares MSCI All China Health Care Index ETF (KURE)

  • Performance over 1-Year: 66.0%
  • Expense Ratio: 0.65%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 135,858
  • Assets Under Management: $246.4 million
  • Inception Date: Feb. 1, 2018
  • Issuer: KraneShares

KURE is a large-cap ETF that is focused on pharmaceutical companies within China's healthcare sector. It tracks the MSCI China All Shares Health Care 10/40 Index. The ETF follows a blended strategy, investing in both growth and value stocks, and has about 111 holdings. The ETF's top three holdings include WuXi Biologics (Cayman) Inc. (2269:HKG), a pharmaceutical company; class A shares of Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (300760:SHE), a manufacturer and distributor of medical equipment; and class A shares of Jiangsu Hengrui Medicine Co. Ltd. (600276:SHG), a pharmaceutical company.

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