An ETF That Gains as China Loses

U.S. markets were closed Monday in observance of the Labor Day holiday. Those bullish on Chinese stocks probably wish Beijing could have invented a holiday to close markets there as the Shanghai Composite tumbled 2.5 percent Monday.

As has been lamented several times in this space in recent weeks, what is bad for Chinese stocks, particularly the A-shares trading on the mainland, is good for the Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD. CHAD, which debuted in mid-June, is the lone inverse exchange traded fund listed in New York that is a bearish A-shares play. In fact, CHAD was highlighted as one of our ETFs to watch this week in an article published before the open of Asian markets on Monday. 

Traders have been heeding that advice and are establishing long positions in CHAD at a feverish pace.

CHAD “has boosted its assets more than 60 times to $253 million as of Sept. 3 since it began trading in June. That’s one of the fastest growth rates among almost 200 exchange-traded funds launched in the U.S. this year, according to data compiled by Bloomberg,” reports Bloomberg News.

Said another way, CHAD's assets under management tally ballooned by about 10 percent from July 27, the day we initially highlighted the ETF, through September 3. Importantly, CHAD has climbed 19.6 percent over that period and more than 21 percent over the past month. 

CHAD is an inverse though not leveraged ETF, meaning it is designed to deliver the daily inverse performance of the CSI 300 Index. The CSI 300 Index tracks what are known as A-shares, the stocks trading in Shanghai and Shenzhen, which is to say Monday’s plunge by the Shanghai Composite was also felt by the CSI 300 Index.

As the aforementioned data points indicate, CHAD is easily one of the most successful ETFs to launch in the U.S. this year. Only a handful of new ETFs have raked in more new assets, but CHAD is the most prolific asset gatherer among new inverse and leveraged funds. On a more anecdotal level, few new ETFs in recent memory have been as well-timed as CHAD.

The ETF debuted just five days after traditional funds tracking the CSI 300 Index peaked and since CHAD launched, that benchmark has plunged more than 41 percent.

This is more good news regarding CHAD. The ETF has a double-leveraged bullish cousin, the Direxion Daily CSI 300 China A Share Bull 2X Shares CHAU. What is notable about CHAU is not its existence, but rather that traders have gotten this trade right, preferring CHAD to its bullish counterpart by more than two-to-one since. CHAU has lost 82.6 percent since its April debut.

As for CHAD, it can be a good predictor of what awaits Chinese stocks the following trading day. For example, the ETF climbed 3.3 percent last Friday on volume that was 87 percent above the daily average.