Market Overview

ETF Showdown: China Tech Titans


Before LinkedIn (NYSE: LNKD) and Russia's Yandex (Nasdaq: YNDX) burst onto the scene with recent IPOs, it was China dominating the Internet IPO landscape with a spate of widely anticipated offerings that had investors feeling all Silicon Valley circa 1998 again.

Perhaps one reason why investors have been so drawn to Chinese Internet stocks is that most of them are the Chinese equivalent of a U.S. company that previously was or still is a high-flying Internet name. Baidu (Nasdaq: BIDU) is China's answer to Google (NYSE: GOOG). (Nasdaq: CTRP) is the Chinese equivalent of (Nasdaq: PCLN) or Expedia (Nasdaq: EXPE).

We could go on and on with these comparisons, but just because a new company is the Chinese equivalent of U.S.-based XYZ Inc. doesn't make it a sound bet. Investors face a dizzying array of Chinese tech options, both new and seasoned, so why not use an ETF to do the legwork? That sentiment makes for a compelling ETF Showdown this week between the Global X Technology ETF (NYSE: CHIB) and the Guggenheim China Technology ETF (NYSE: CQQQ).

Fun fact about CHIB and CQQQ: They share the same inception date, Dec. 8, 2009. The expense ratios are also close at 0.65% for CHIB and 0.7% for CQQQ.

The two ETFs share something else in common that investors need to be aware: The most recent Chinese Internet IPOs are not included in either fund. If you're looking for the Facebook of China, Renren (NYSE: RENN), the (Nasdaq: AMZN) of China, Dangdang (NYSE: DANG), or (NYSE: YOKU), China's YouTube, you won't find them in either CHIB or CQQQ.

Frankly, CHIB is kind of a conservative Chinese tech play as China Telecom (NYSE: CHA), China Unicom (NYSE: CHU) and China Mobile (NYSE: CHL) are the ETF's top three holdings and account for over 16% of the fund's weight.

CQQQ, which holds 40 stocks, is where the big weights to high-fliers Baidu and Sina (Nasdaq: SINA) lie. Those two stocks combine for over 23.5% of the ETF's weight and CQQQ offers great exposure to Tencent Holdings, which isn't listed in the U.S., at almost 11%. All three of those stocks appear in CHIB, but account for just 14% of the ETF's 26 holdings.

We'll give CHIB its due and note that it provides a 4.6% weight to Ctrip, one of the more well-established Chinese Internet names, while the stock is conspicuous by its absence in CQQQ.

CHIB also deserves some props for gaining 23.4% in the past year, a performance that easily outpaces the 17% offered by CQQQ. The latter's performance is somewhat dumbfounding considering the big weights to and torrid pace of Baidu and Sina.

It's hard to ignore the outperformance, lower fees and Ctrip exposure, so those factors are enough to make CHIB the winner of this showdown. That said, we'll give CQQQ a consolation prize and say that on the basis of superior volume and the big Baidu and Sina exposure, it is the preferable option of this pair for short-term traders.

Posted-In: Long Ideas News Sector ETFs Short Ideas Emerging Market ETFs IPOs Global Pre-Market Outlook


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