Chinese ETFs: All Things Considered

October 27, 2016

Market-Cap Indexes Dominate

The majority of indexes for these ETFs follow the market-cap-weighting scheme.

However, two of the 44 Chinese ETFs are based on smart-beta thematic weighting methodology. For example, the WisdomTree China ex-State-Owned Enterprises Fund (CXSE) followed the firm's signature methodology, dividend payments. The First Trust China AlphaDEX Fund (FCA) uses fundamental factor weighting.

Different Exposures, Different Returns

Due to the performance divergence between A-shares and overseas-listed shares this year, ETFs tracking A-shares have lagged in performance significantly year-to-date. We also see the so-called new economy (tech and consumer) outperforming the old economy (financial and industrial). For example, the China technology fund Guggenheim China Technology ETF (CQQQ) has produced returns of 15% this year (as of 10/11/2016).

Sector Exposure & Concentration

The largest ETFs track broad indexes. They tend to have substantial exposure to the financial sector, due to the dominance of state-owned banks and insurance companies. For example, nearly half of FXI is exposed to financials. These top ETFs also have larger exposure to tech and telecom sectors.

The two largest sector funds also correspond to the so-called new economy, i.e., KWEB and the Global X China Consumer ETF (CHIQ).

Chinese ETF Sector Exposure

Chinese ETFs

For a larger view, please click on the image above.

2016 Flow Trends: Broad Index Losing Appeal

This year, the largest Chinese equity ETFs, the broad index-based ETFs, have all incurred net outflows. Yet A-share-based ETFs, such as ASHR, have attracted net inflow. The new economy sector ETFs, such as those focusing on technology and real estate, also attracted net inflows.

 

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