The trend of Exchange-Traded Funds (ETFs) capturing narrower and narrower segments of the markets continues inexorably with Claymore announcing a brand-new China ETF that started trading on the TSX just the other day. The new ETF joins an already crowded space: iShares offers a competing product called the iShares China Index Fund (XCH) and for its part, BMO offers a China Equity Hedged to CAD (ZCH).
iShares China ETF (XCH)
XCH tracks the FTSE/Xinhua China 25 Index that is composed of 25 Chinese blue chip shares that are listed on the Hong Kong stock exchange. The management fee of the fund is 0.85%. XCH in turn owns the iShares FTSE/Xinhua China 25 ETF (NYSE Arca: FXI). FXI’s MER is 0.73%.
BMO China Equity Hedged to CAD (ZCH) ETF
ZCH tracks the BNY Mellon China Select ADR Index hedged to Canadian dollars, which is an index of American depositary receipts of China-based companies. The exposure to China’s currency is hedged back to Canadian dollars. The management fee of the fund is 0.65%.
Claymore China ETF (CHI)
CHI tracks the AlphaShares China All Cap Index, which is composed of mainland China companies that are open to foreign ownership. The management fee is 0.70%. CHI in turn owns the Claymore/AlphaShares China All-Cap ETF listed on NYSE Arca with the ticker symbol YAO.
Bottom line
Assuming an investor already has some exposure to a broad-market emerging markets ETF such as the Vanguard Emerging Markets ETF (NYSE Arca: VWO), it is questionable why she would want to slice and dice emerging markets into individual countries. While China may be growing fast and could continue to do so, investors should note that fast economic growth does not automatically translate into higher stock market returns. In any case, Chinese stocks are not for the faint of heart: like other emerging markets, Chinese stocks are extremely volatile. As a resource-based economy, Canada’s fortunes are already tied to that of commodity markets, which in turn are driven by Chinese demand for raw materials. Canadian investors have a much safer way to participate in China’s growth through stocks trading right here in Canada.
