Grantham Mayo's BCHI Fund Looks Beyond China

The new GMO Beyond China ETF (BCHI), which started trading Thursday morning, wasn’t designed with the Trump administration’s tariff threats in mind. But, according to the portfolio managers, the exchange-traded fund seems targeted to navigating growing geopolitical uncertainty.

“We were not planning on all this tariff stuff when we created the fund, but that’s the reason it’s active and not passive,” said Arjun Divecha, founder of emerging markets strategies at Grantham Mayo Van Otterloo & Co. in Boston.

Divecha explained that BCHI is less about being anti-China than it is about taking advantage of the shifting dynamics in the manufacturing and supply chains across emerging market economies.

The Shift Away From China

Even before President Donald Trump was elected, "there were a number of factors for diversifying out of China," Divecha said. “Even Chinese companies are moving production to Vietnam to lower their labor costs,” he added.

The origins of the current efforts to diversify beyond China, he said, can be traced to the Covid-19 pandemic that exposed supply chain concentration risk.

Prior to Covid, for example Apple Inc. (AAPL) was manufacturing 100% of its iPhones in China, but the company now makes almost a quarter of its phones in India.

Walmart Inc. (WMT) was getting 80% of its supplies from China prior to Covid, and that is now down to 60%, Divecha said.

Part of it is supply concentration risk and part of it is other factors, including labor costs.

“China’s labor costs are now around $8 an hour, while other emerging market countries are only paying $2 or $4 an hour,” Divecha said.

Warren Chiang, BCHI portfolio manager, said the ETF will hold about 100 stocks from countries benefiting from the secular shift away from China as a global manufacturing hub.

In terms of sectors, Chiang said the portfolio is allocated to industrials, consumer discretionary, real estate and financials.

Trump’s Tough Tariff Talk

As far as tariffs are concerned, Divecha said history has proven they have less impact on moving manufacturing back to the United States than people might expect.

“In 2018, Mr. Trump put tariffs on China and those tariffs were extended under Joe Biden,” Divecha said. “The U.S. imports from China went from 24% to 12%, but that manufacturing didn’t come back on shore, it all went to places like India and Vietnam.”

Even if the tariffs fail to have the desired effect, Chiang said, “these tariff announcements will magnify the need to diversify supply chains.”

“It will only reinforce the trend of having multiple suppliers and manufacturers,” he added.

Grantham Mayo, which manages $65 billion across mutual funds, separate accounts and ETFs, launched its first ETF in November 2023 and currently manages six ETFs.