ETF investors are reaping the benefits of an industry that is cutting down fund tracking error.
Chinese equity-based-ETFs continue to fall, caused by their own “boom-bust credit cycles,” according to an article on ETF Trends.
In November, new home prices in Beijing fell by 35 percent, and construction firms reportedly had $50 billion in unsold inventories, the article said.
Not all China ETFs are created equal, and investors should be asking what type of shares their China funds hold.
PowerShares, the Wheaton, Ill.-based fund sponsor behind the popular Nasdaq 100 ETF, “QQQ,” filed paperwork with the Securities and Exchange Commission to market a pan-China equities ETF with a “fundamental” indexing methodology it said would screen for attractive pricing.
The PowerShares CSI Fundamental Greater China Portfolio will be based on an as-yet-unnamed index that tracks performance of 200 companies on the Hong Kong Exchange and 100 companies on the Taiwan Stock Exchange with “the most attractive price valuations.” The securities must be listed for at three months on either exchange, the filing said.
The companies that are part of the ETF must be incorporated on the Chinese market -- which it defined broadly as mainland China, Hong Kong, Taiwan or Macau -- and have headquarters somewhere in that “Chinese market;” or derive at least half of its revenues from that market. It said it will achieve its objective through a sampling strategy, meaning it won’t own all the companies in the index.
The quest for the perfect mousetrap to capture the dynamism of the Chinese market grows more extensive and varied every day. While the first-to-market mega-cap fund, the iShares China FTSE/Xinhua China 25 remains the biggest of all China-focused ETFs with more than $7 billion in assets, ETF sponsors are keen to exploit investors openness to different ways of accessing China’s vast market.
Last week, for example, Van Eck filed paperwork with the SEC to market an ETF that offers a number of different Chinese share classes to more broadly expose investors to China. It had some similarities to a fund iShares put into registration early this year. Among existing funds, the mid- to smaller cap SPDR China ETF (NYSEArca: GXC) has gained traction, gathering $772 million since its launch.
PowerShares didn’t name the proposed “fundamental ETF’s ticker or its potential annual expense ratio.
Van Eck adds to pursuit of a better China ETF mousetrap.