A New China ETF To Consider

An array of China-focused exchange traded funds are benefiting as Chinese equities lead emerging markets higher this year.

When considering China ETFs, U.S. investors often lean toward traditional funds. Investors leaning that way may want to consider a newer fund that compares favorably with some established China ETFs.

What Happened

Last December, Global X unveiled a major expansion to its lineup of China ETFs. Most of the new funds are sector products, but the firm also launched a broad China fund in the form of the Global X MSCI China Large-Cap 50 ETF CHIL.

CHIL, which tracks the MSCI China Top 50 Select Index, has the makings of a credible competitor to the likes of the iShares China Large-Cap ETF FXI — one of the largest U.S.-listed China ETFs — and similar legacy China funds.

Why It's Important

CHIL's underlying index “incorporates all eligible securities as per MSCI’s Global Investable Market Index Methodology, including China A, B and H shares, Red chips, P chips and foreign listings, among others,” according to Global X.

Compare that to FXI, where most of that fund's holdings trade in Hong Kong, London or New York. As AltaVista Research pointed out in a recent note, CHIL also features significant sector differences from FXI.

While the Global X fund's largest sector weight is financials, like many China ETFs, CHIL devotes 30.2 percent to that sector compared to 46.02 percent in FXI. Proving it is robust leverage to the China consumer theme, CHIL has a 21.7-percent weight to consumer discretionary stocks, more than quadruple the sector weight found in FXI.

CHIL is also slightly overweight communication services names relative to FXI.

What's Next

While CHIL has not yet attracted significant inflows from investors, it very well could going forward because it has fees on its side. The Global X ETF charges 0.29 percent per year, or $29 on a $10,000 investment, making it the second-cheapest China ETF listed in the U.S. FXI's annual fee is 0.74 percent.

AltaVista has an Overweight rating on CHIL.

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