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). The iShares MSCI China ETF (MCHI), by far the biggest China index ETF and a benchmark for this group of funds, has dramatically outperformed the broader market in the past year. It has provided a 1-year trailing total return of 31.6% compared with 17.2% for the S&P 500. 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

  • China ETFs significantly outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are KURE, KWEB, and CNXT.
  • The top holdings of these funds are Jiangsu Hengrui Medicine Co. Ltd., Alibaba Group Holding Ltd., and Luxshare Precision Industry Co. Ltd., respectively.

The China ETF universe is comprised of about 16 distinct funds, excluding inverse, leveraged, and other funds with less than $50 million in assets under management (AUM). The top performing China ETF is the KraneShares MSCI All China Health Care Index ETF (KURE). Below, we'll look at the top 3 China ETFs as measured by 1-year trailing total returns. All numbers in this story are as of August 10, 2020.

KraneShares MSCI All China Health Care Index ETF (KURE)

  • 1-Year Trailing Total Returns: 80.1%
  • Expense Ratio: 0.65%
  • Annual Dividend Yield: 0.16%
  • 3-Month Average Daily Volume: 68,531
  • Assets Under Management: $111.8 million
  • Inception Date: February 1, 2018
  • Issuing Company: KraneShares

KURE is a large-cap ETF that tracks the MSCI China All Shares Health Care 10/40 Index, which has about 80 Chinese stocks across a broad range of China's healthcare industry. The ETF, which invests in both value and growth stocks, is primarily focused on the China's pharmaceutical industry. The ETF's top three holdings include Jiangsu Hengrui Medicine Co. Ltd. (600276), a pharmaceutical company; WuXi Biologics (Cayman) Inc. (2269), a pharmaceutical company; and Shenzhen Mindray Bio-Medical Electronics Co. Ltd. (300760), a manufacturer and distributor of medical equipment.

KraneShares CSI China Internet ETF (KWEB)

  • 1-Year Trailing Total Returns: 70.6%
  • Expense Ratio: 0.76%
  • Annual Dividend Yield: 0.06%
  • 3-Month Average Daily Volume: 2,045,308
  • Assets Under Management: $2.8 billion
  • Inception Date: July 31, 2013
  • Issuing Company: KraneShares

KWEB is unique among China ETFs for its pureplay exposure to Chinese software and information technology companies. The multi-cap fund follows a blended strategy and tracks the CSI China Overseas Internet Index, comprised of 50 overseas Internet-related companies. The ETF's top three holdings include Alibaba Group Holding Ltd., a multinational technology company specializing in e-commerce, internet infrastructure, online financial services, and more; Meituan Dianping (3690), a web-based shopping platform; and Tencent Holdings Ltd. (700), a technology company offering social networking, gaming, payments, web portals, e-commerce, and more.

VanEck Vectors ChinaAMC SME-ChiNext ETF (CNXT)

  • 1-Year Trailing Total Returns: 67.9%
  • Expense Ratio: 0.65%
  • Annual Dividend Yield: 0.32%
  • 3-Month Average Daily Volume: 35,880
  • Assets Under Management: $50.1 million
  • Inception Date: July 24, 2014
  • Issuing Company: VanEck

CNXT is a large cap fund that tracks the SME-ChiNext 100 Index, comprised of the 100 largest and most liquid China A-share stocks listed on the Small and Medium Enterprise Board and the ChiNext Board of the Shenzhen Stock Exchange. The fund follows a blended strategy. The ETF's top three holdings include Luxshare Precision Industry Co. Ltd. (002475), a manufacturer of connectors used in computers, consumer electronics, and automobiles; Contemporary Amperex Technology Co. Ltd. (300750), a battery products manufacturing company; and East Money Information Co. Ltd. (300059), an internet advertising and financial data company.