China exchange-traded funds (ETFs) offer a way for investors to geographically diversify their portfolios by owning stakes in a basket of companies based in the world’s second-largest economy. Despite the large number of state-owned Chinese enterprises, there are still many companies there whose shares are publicly traded, including Tencent Holdings Ltd. (700), Ping An Insurance Group Co. of China Ltd. (601318), and China Yangtze Power Co. Ltd. (600900).
Certain Chinese stocks were 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 United States and China continue to pose risks to investors in China-based assets.
China’s gross domestic product (GDP) grew 2.3% in 2020 as the economy began to rebound by the end of the year from the disruptions caused by the COVID-19 pandemic. Still, that growth rate was the lowest in decades. China's GDP rebounded sharply in 2021, growing by 8.1% over the course of the year largely due to strong industrial production.
- Chinese equities significantly underperformed the U.S. stock market over the past year.
- The China exchange-traded funds (ETFs) with the best one-year trailing total returns are CHIX, KBA, and CNYA.
- The top holdings of these ETFs are Class H shares of China Construction Bank Corp., Class A shares of Contemporary Amperex Technology Co. Ltd., and Class A shares of Kweichow Moutai Co. Ltd., respectively.
There are 18 China ETFs that trade in the United States, 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 significantly underperformed the U.S. stock market over the past 12 months, posting a total return of -33.1% compared to the S&P 500’s total return of 18.6%, as of Feb. 3, 2022. The best-performing China ETF for the second quarter (Q2) of 2022, based on performance over the past year, is the Global X MSCI China Financials ETF (CHIX).
We examine the three best China ETFs below. All numbers below are as of Feb. 3, 2022.
- Performance Over One-Year: -3.4%
- Expense Ratio: 0.65%
- Annual Dividend Yield: 3.57%
- Three-Month Average Daily Volume: 112,156
- Assets Under Management: $103.9 million
- Inception Date: Dec. 10, 2009
- Issuer: Mirae Asset Global Investments Co.
CHIX targets the MSCI China Financials 10/50 Index, an index comprised of the large- and mid-cap segments of companies on the MSCI China Index, which are part of the financials sector. In this way, CHIX provides a targeted play on the financial sector in China, the second-largest global economy. Investors can expect to pay a slight premium for the targeted exposure to China's financial sector because CHIX has a higher expense ratio than some broader China-focused ETFs. The fund’s top three holdings are Class H shares of China Construction Bank Corp. (939:HKG), a major Chinese bank; Class H shares of Industrial and Commercial Bank of China Ltd. (1398:HKG), a China-based multinational bank; and Class H shares of Ping An Insurance (Group) Company of China Ltd. (2318:HKG), a Chinese insurance, banking, asset management, and related services company.
- Performance Over One-Year: -10.6%
- Expense Ratio: 0.79%
- Annual Dividend Yield: 0.64%
- Three-Month Average Daily Volume: 190,147
- Assets Under Management: $672.6 million
- Inception Date: March 5, 2014
- Issuer: CICC
KBA targets the MSCI China A 50 Connect Index, which is comprised of 50 large-cap stocks listed in Shanghai and Shenzhen. The fund includes some of China's largest, most liquid stocks that receive the most foreign interest and inflows, including those that may benefit from increased global investment in China’s onshore market over the long term. KBA focuses on a blend of value and growth stocks. The top holdings of KBA include Class A shares of Contemporary Amperex Technology Co. Ltd. (300750:SHE), a Chinese battery maker and technology company; Class A shares of Kweichow Moutai Co. Ltd. (600519:SHG), a partially state-owned Chinese spirits manufacturer; and Class A shares of LONGi Green Energy Technology Co. Ltd. (601012:SHG), a Chinese maker of photovoltaic solar modules.
- Performance Over One-Year: -11.3%
- Expense Ratio: 0.60%
- Annual Dividend Yield: 0.98%
- Three-Month Average Daily Volume: 194,800
- Assets Under Management: $913.6 million
- Inception Date: June 13, 2016
- Issuer: BlackRock Financial Management
CNYA tracks the MSCI China A Inclusion Index. The fund holds hundreds of stocks with a broadly diverse basket of names. Financials, consumer staples, and industrials stocks are the top three sectors by portfolio representation, accounting for about half of invested assets. This large-cap fund follows a blended strategy, including both value and growth stocks in its holdings. The top three holdings of CNYA are Class A shares of Kweichow Moutai; Class A shares of Contemporary Amperex Technology, described above; and Class A shares of China Merchants Bank Co. Ltd. (600036:SHG), a commercial bank.
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