Niche ETF of the Week – China Technology (QQQC, BIDU, QIHU, SINA)
The emergence of niche ETFs have opened the door for investors to diversify a portfolio into areas that were not available a few years ago. Niche ETFs are not limited to only stocks in the U.S., they also reach to both developed and emerging foreign countries.
The Global X NASDAQ China Technology ETF (NYSE: QQQC) tracks the technology sector within China. The ETF focuses on stocks that have their main business operations in software, the Internet, electronics, communications, and computer hardware. There are a total of 27 stocks in the ETF with a heavy concentration in the top ten holdings.
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The top holdings include several companies that trade in the U.S. as ADRs. Baidu (NASDAQ: BIDU), often referred to as the Google (NASDAQ: GOOG) of China, is the number two holding, making up nine percent of the allocation. Qihoo 360 Technology (NYSE: QIHU)and SINA Corp (NASDAQ: SINA) are also in the top 10 and account for 16 percent of the ETF.
As the technology stocks in the U.S. are hitting decade highs, QQQC is not far behind, trading near the best level in over a year. For the year QQQC is up 45 percent, easily beating the S&P 500 and the SPDR Technology ETF (NYSE: XLK). XLK is best U.S. comparison to QQQC and it is only up 18 percent in 2013. More importantly QQQC is crushing the other large-cap stocks in China. The iShares FTSE/Xinhua China 25 ETF (NYSE: FXI) is down one percent this year.
Even the performance of QQQC has been phenomenal this year, the ETF has yet to attract big money from investors. The ETF began trading on December 8, 2009, and it only has $10.2 million in net assets. Often investors are scared away from niche ETFs, especially if they invest in emerging markets. Unfortunately investors are only spiting themselves by ignoring the opportunities that are available via the world of niche ETFs.
The expense ratio is 0.65 percent and below the 0.74 percent that the $5.5 billion FXI charges its investors. Considering the niche investments that QQQC offers to investors the expense ratio is more than reasonable.
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There obviously are risks with all investments, but with QQQC an investor will be taking above average risk. The beta for QQQC is 1.31 versus the S&P 500 and will therefore be more volatile. On the flip side, the ETF has a beta of 0.86 versus the MSCI emerging markets index, suggesting less volatility than entire asset class.
The outlook for QQQC is enticing considering the popularity of technology stocks around the globe heading into 2014. Add in the fact that Chinese stocks as a whole are undervalued and the cards are setting up for higher prices for the ETF.
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