Market Overview

An Unheralded Sector ETF For China Exposure

An Unheralded Sector ETF For China Exposure

China, the world's second-largest economy, delivered another positive economic data point overnight as the country's official purchasing managers' index for the services sector soared to 56.1 in December from 55.6 in November. A surge in construction services to 61.9 from 61.3 in November lead the way, bolstering proof that China's economy is in fact turning around.

Predictably, the turnaround in China's economy and its equities has lifted the fortunes of an array of China-specific and other emerging markets ETFs. However, investors looking to play a China rally with sector ETFs have some compelling options as well.

The still new iShares MSCI Global Select Metals & Mining Producers Fund (NYSE: PICK) comes to mind. PICK will celebrate its first birthday at the end of this month and over that time, the ETF has been a prodigious gather of assets, raking in $263.5 million in assets under management. That is an impressive tally for less than a year of work.

Importantly, several of PICK's 285 holdings are intimately levered to a rebounding Chinese economy, as Street One Financial Vice President Paul Weisbruch highlights in a research note out today.

"With China based equities finally springing to life after a period of prolonged under-performance and noting that China is the largest single country component of the broad based MSCI Emerging Markets Index (19.01% weighting currently), PICK is well positioned to benefit from any demand for metals used in the construction/infrastructure build out process that is often linked to China and other emerging economies," said Weisbruch.

BHP Billiton (NYSE: BHP), the world's largest mining company, alone represents almost 20 percent of PICK's weight. Rivals Rio Tinto (NYSE: RIO) and Vale (NYSE: VALE) are also found among PICK's top-10 holdings along with U.S. copper giant Freeport-McMoRan (NYSE: FCX).

Weisbruch also notes that since PICK debuted in last January, the fund has outperformed the more established SPDR S&P Metals & Mining ETF (NYSE: XME). XME has over $1 billion in AUM, but over the past six months, PICK is up 15.3 percent compared to a gain of 7.8 percent for XME.

Over the same time horizon, PICK has sharply outperformed Rio Tinto, Vale and Freeport. And although PICK is a sector fund, it does give investors plenty of emerging markets exposure at the country level. Brazil, South Korea, South Africa and Mexico are top-10 country weights.

The fund also offers modest exposure to Taiwan, Russia, China, Indonesia, Malaysia, Chile and Turkey among others.

Investors get all that with PICK for an annual expense ratio of 0.39 percent, which compares favorably with several popular, materials-heavy emerging markets ETFs.

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