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A Better ETF Mousetrap For The Chinese Economic Elephant

by
April 30, 2018 1:29 pm
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Hundreds of exchange-traded funds offer exposure to Chinese stocks while dozens are dedicated to the world's second-largest economy. With numbers that large, it's reasonable to expect few, if any, carbon copies among China-specific ETFs.

An advisable approach to Chinese equities is using comprehensive exposure. After all, this is a massive economy with some of the world's largest equity markets, traits that some China ETFs don't always reflect. The WisdomTree ICBCCS S&P China 500 Fund (NYSE:WCHN) provides broad-based China equity exposure.

What Happened

WCHN debuted in December. The ETF tracks the S&P China 500 Index, a broad measure of Chinese equities that includes stocks listed on mainland China (A-shares) as well as Chinese companies listed in other domiciles.

“This index currently holds over 50 percent in local A-shares,” said WisdomTree in a recent note. “MSCI, by contrast, is only starting to add A-shares securities up to a 5 percent inclusion factor in 2018, a small starting point.”

Why It's Important

To be precise, WCHN holds 472 stocks, which is a significantly larger roster than is found on some legacy China ETFs. As is the case with many China ETFs, WCHN largest sector is weight is financial services. WCHN allocates 25 percent of its weight to that sector, however, compared to almost 49 percent in the FTSE China 50 Index.

WCHN allocates almost 32 percent of its combined weight to the technology and consumer discretionary sectors, which are more direct plays on Chinese growth. Those sectors combine for just 14 percent of the FTSE China 50 Index.

What's Next

“Beijing is sitting on a $3.1 trillion foreign exchange reserve fortress, is the global leader in mobile payments, is home of Amazon-esque Alibaba and Tencent, is number two in international patent applications, and on and on,” said WisdomTree.

WCHN has been mostly flat since coming to market, but the fund could be well-positioned to deliver upside if A-shares and Chinese technology names trend higher. The fund charges 0.55 percent per year, or $55 on a $10,000 investment.

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