Global X Funds, the New York-based ETF provider that was the first to offer funds focusing on Colombia and the Nordic region, has filed for approval with the SEC to launch six new ETFs that focus on various sectors of the Chinese economy. The proposed funds include:
- Global X Consumer
- Global X China Energy
- Global X China Financials
- Global X Industrials
- Global X Materials
- Global X Technology
The move is the latest in a trend towards more targeted exposure to economies that account for an increasingly large portion of the global economy. Emerging Global Advisors recently launched the Emerging Global Shares Financials (EFN), the first fund focusing on the financial sector in emerging markets economies. EFN is Emerging Global Advisors’ third ETF focusing on a specific industry in emerging markets economies, joining metals (EMT) and energy (EEO). EGA also offers a fund with exposure to a composite of emerging markets sectors (EEG).
China is the world’s third largest economy, and many believe it is only a matter or time before the Middle Kingdom surpasses Japan and the U.S. for the top spot. Yet ETF options for investors looking to gain exposure to Chinese equities are, for the most part, limited to funds tracking broad-based indexes. The most popular China ETF, iShares FTSE/Xinhua China 25 Index Fund, contains 25 primarily mega-cap names, and misses completely on many sectors of the Chinese economy.
Our ETF Screener shows that there are more than 380 equity ETFs offering exposure to the U.S. markets, with many of these funds investing exclusively in relatively obscure niches of the U.S. economy. The Market Vectors Agribusiness ETF (MOO), PowerShares Water Resources Portfolio (PHO), and Market Vectors Gaming ETF (BJK) are just three examples of funds targeting very specific areas of the U.S. economy. And these three ETFs have been extremely successful – MOO and PHO maintain market caps near $1.5 billion while BJK has more than $100 million in assets.
On the other hand, there are only about five ETFs offering exposure to China, and none of these are particularly targeted (Claymore’s HAO does offer small cap exposure). These funds include:
- iShares FTSE/Xinhua China 25 Index Fund (FXI)
- SPDR S&P China ETF (GXC)
- PowerShares Golden Dragon Halter USX China Portfolio (PGJ)
- Claymore/AlphaShares China Small Cap ETF (HAO)
- iShares FTSE China (Hong Kong Listed) (FCHI)
Each of the six sectors the proposed funds would cover – consumer, energy, financials, industrials, materials, and technology – are already the subject of dozens of U.S. ETFs, which leads me to believe similar funds focusing on Chinese markets will be embraced by investors.
Legendary investor and author Burton Malkiel is now the Chief Investment Officer of AlphaShares, an investment management firm that has teamed up with Claymore to offer two ETFs focused on China: HAO and the Claymore/AlphaShares China Real Estate ETF (TAO). For years, Malkiel has been suggesting that U.S. investors are underexposed to China. Now it appears that the number of China ETFs is set to surge, offering “China-deficient” investors significantly more options.
One of the obvious hurdles will be expenses. China is still an emerging market, meaning that barriers to investment in the country’s equity markets are likely to result in higher costs for investors. No expense ratios were included in the most recent filing.
Disclosure: No positions at time of writing.
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