Wisdomtree Launches China Equity ETF

Wisdomtree has launched a new fund focused on providing exposure to Chinese equities in late December.

WisdomTree ICBCCS S&P China 500 Fund WCHN seeks to track the yield and performance, before fees and expenses, of the S&P China 500 Index. The index selects 500 largest companies from the S&P Total China BMI Index.

Fund Characteristics

This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy. Within a short span, the fund has generated an asset base of $3.1 million. The fund is a moderately expensive bet, as it charges a fee of 55 basis points a year.

From a sector look, Financials, Information Technology and Consumer Discretionary are the top three allocations of the fund, with 24.9%, 21.3% and 11.8% exposure, respectively (as of Dec 28, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba (NYSE:BABA) Group Holding Ltd ADR and China Construction Bank Corp are the top three allocations of the fund, with 9.1%, 6.3% and 3.4% exposure, respectively (as of Dec 28, 2017).

How Does it Fit in a Portfolio?

The Chinese government has been addressing issues relating to property market speculation and high debt. Moreover, at the Congress meeting in October, Chinese policymakers indicated at a shift of agenda to check pollution and financial risks over economic growth at any cost.

This led to an initial slowdown in economic fundamentals. China’s curbs on construction and industrial sectors to crack down on pollution have affected pollution-intensive companies and have added to their cost pressures. China's industrial output grew 6.2% year over year in October compared with 6.6% in September.

However, the economy seems to be rebounding from the headwinds caused by the government’s shift in focus. On a year-over-year basis, exports increased at an impressive pace in November. It grew 12.3% in November compared with 6.9% in October. Moreover, on account of strong trade and consumption growth, the World Bank raised its forecast for China’s GDP growth in 2017 to 6.8% from 6.7% it projected in October.

As a result, this ETF offers a good way to diversify investors’ portfolio by gaining exposure to the Chinese equity space. However, a steady appetite for risk is required to invest in emerging market investments. WCHN invests in the largest companies in China, thus reducing the risks these investments expose investors to.

Competition

It faces high competition from other funds focused on providing exposure to the same space. Below we discuss a few ETFs that seek to provide exposure to this corner (see all Asia-Pacific Emerging ETFs here).

iShares China Large-Cap ETF (TE:FXI)

This fund seeks to provide exposure to Chinese equities, serving as a pure play on the economy.

It has AUM of $3.9 billion and is a relatively expensive bet as it charges a fee of 74 basis points a year. From a sector look, Financials, Energy and Information Technology are the top three allocations of the fund, with 54.2%, 11.6% and 8.9% exposure, respectively (as of Dec 27, 2017). From an individual holding perspective, China Construction Bank Corp, Tencent Holdings Ltd and Industrial and Commercial Bank of China are the top three allocations of the fund, with 9.3%, 8.9% and 7.7% exposure, respectively (as of Dec 27, 2017). The fund has returned 31.1% year to date and 32.4% in a year (as of Dec 28, 2017). FXI has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.

iShares MSCI China ETF MCHI

This ETF is another such option to play the BRIC nation.

It has AUM of $2.9 billion and charges a fee of 64 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 41.3%, 22.6% and 9.3% exposure, respectively (as of Dec 27, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corp are the top three allocations of the fund, with 18.3%, 12.4% and 4.8% exposure, respectively (as of Dec 27, 2017). The fund has returned 50.3% year to date and 51.5% in a year (as of Dec 28, 2017). MCHI has a Zacks ETF Rank #3 with a Medium risk outlook.

SPDR S&P China (MX:GXC) ETF GXC

This fund has AUM of $1.1 billion and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Consumer Discretionary are the top three allocations of the fund, with 36.5%, 22.5% and 10.5% exposure, respectively (as of Dec 27, 2017). From an individual holding perspective, Tencent Holdings Ltd, Alibaba Group Holding ADR and China Construction Bank Corporation are the top three allocations of the fund, with 15.2%, 10.8%, and 5.3% exposure, respectively (as of Dec 27, 2017). The fund has returned 47.6% year to date and 48.8% in a year (as of Dec 28, 2017). GXC has a Zacks ETF Rank #3 with a Medium risk outlook.

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