Market Overview

A Bright Idea Among China ETFs

A Bright Idea Among China ETFs

This has been a banner year for Chinese stocks. The MSCI China Index is up 48.5 percent year-to-date, well ahead of the 30.5 percent returned by the S&P 500. While that performance by the MSCI China Index is undoubtedly impressive, other avenues to Chinese equities are performing even better.

Just look at the WisdomTree China ex-State-Owned Enterprises Fund (NASDAQ: CXSE). CXSE is one of this year's best-performing non-leveraged exchange traded funds, with a gain of nearly 73 percent. As its name implies, CXSE eschews allocations to the lumbering, slow-growing state-owned companies that figure prominently in many traditional Chinese equity benchmarks.

While CXSE ditches state-owned companies, the MSCI China Index is almost evenly split between companies controlled by Beijing and non-state-controlled firms, in part explaining the performance differential between the WisdomTree ETF and the widely followed China benchmark.

Building Outperformance

CXSE's underlying index is just over 2 1/2 years old, but in that time, it has easily outpaced the MSCI China Index.

Since inception, CXSE's index “has outperformed the MSCI China Index by almost 1,000

CXSE allocates nearly 57 percent of its combined weight to the technology and consumer discretionary sectors. That is about the same as is found in the MSCI China Index.

Other Compelling Points

Inquisitive investors should examine the “why” of CXSE's outperformance and move beyond simply knowing that the ETF avoids state-owned enterprises. There is more to the story and the data points are encouraging.

“While conducting this analysis, we realized that companies with less government ownership have, on average, higher

CXSE has $150.3 million in assets under management, of which $108.1 million has been allocated to the fund just this year.

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