Three China tech ETFs vie for assets, but which one will end up holding shares of Alibaba?
China’s slowing economy grew at a faster-than-expected clip last quarter, and investors who focus on the region say that the tech sector is currently the best bet on the world’s second-largest economy.
China’s economy has slowed in recent years as government officials are trying to refocus the country’s growth on consumption rather than exports. The country recently reported better-than-expected gross domestic product growth in the second quarter.
On the tech front, Alibaba’s much-anticipated IPO on the NYSE within the next two months is expected to build momentum for more Chinese tech companies to make public offerings in the U.S. China is home to the world’s largest and still-growing Internet population.
“Tech and Internet are booming in China, because unlike in the West, it’s still an emerging consumer service,” said James McDonald, chief investment officer at Index Strategy Advisors. “Hundreds of millions of citizens aren’t yet connected, and the e-retailing market is expanding quickly. This is really the only way to make money in terms of ETF investing, in my view.”
Unlike its competitors, the fund’s primary focus on Chinese Internet companies could make it a likely portfolio destination for Alibaba shares.
Three ETFs currently offer exposure to the Chinese technology sector, and while all may hold shares of Alibaba—one of the three, a pure-play Internet fund—is probably the most likely to hold shares of the Chinese Internet commerce company.
For side-by-side comparison of these three ETFs, check out our China Technology Segment Report.
3. Guggenheim China Technology ETF (CQQQ | C-25) AUM: $74M; YTD Performance: 4.8 percent
The ETF holds 60 Chinese tech companies ranging from big names like Tencent, Baidu and Lenovo to lesser-known companies such as TPV Technology—the world’s largest manufacturer of computer monitors. CQQQ has decent liquidity that should be adequate for buy-and-hold investors, according to Spencer Bogart, an ETF.com analyst.
But CQQQ is somewhat costly—not only does it have an annual expense ratio of 0.70 percent, or $70 for every 10,000 invested—spreads on the thinly traded ETF average more than 0.20 percent, adding transaction costs to ownership.