Five ETFs That Will Live Or Die By China

by on May 29, 2012 | ETFs Mentioned:

The Chinese economy has carved out its presence on the global stage and this Asian bellwether continues to offer lucrative growth potential while much of developed world lags behind. China’s rapid expansion has been, and continues to be, fueled by favorable demographic trends; an ever-expanding middle class coupled with increasing rates of urbanization are just two of the factors bolstering economic growth overseas. Thanks to the evolution of the ETF industry, mainstream investors have been easily able to tap into China’s red hot economy for several years now [see also Asia-Centric ETFdb Portfolio].

Investors and traders of all walks have embraced the exchange-traded product structure as the preferred investment vehicle for accessing this market given the transparency and cost-efficiency benefits associated with the ETF wrapper. With over a dozen ETFs in the China Equities ETFdb Category,  investors have a handful of ways to gain direct exposure to this corner of the global market.

Luckily, the ETF universe is vast and the range of options for those looking to gain indirect exposure to China is plentiful. As such, below we highlight five ETFs which offer compelling indirect exposure to China’s economy:

Teucrium Soybean Fund (SOYB)

The investment thesis here is fairly straightforward: China is the biggest buyer of this agricultural commodity in the world. Furthermore, China’s appetite is only growing given its ever-expanding population, which paints a compelling outlook for soybean demand in the foreseeable future. SOYB offers futures-based exposure to soybean prices with a twist; unlike many commodity ETPs which simply roll out exposure to front moth futures upon expiration, the underlying holdings here are spread out across multiple maturities. SOYB’s unique methodology is designed to minimize the potential adverse impact of contango, which can go a long way in enhancing bottom line returns over the long-haul  [see also ETFs For China's Investment Sweethearts].

Market Vectors Rare Earth/Strategic Metals ETF (REMX)

China’s wealth of natural resources coupled with lax labor and environmental laws have propelled it to become the leading miner of rare earth and strategic metals. Not only does this Asian powerhouse control most of the global production for these commodities, demand from around the world is also climbing given their use in all sorts of electronics and new technologies. As such, REMX presents itself as an appealing indirect China play. This ETF holds approximately 30 companies from around the world which are engaged in mining, refining, and manufacturing of rare/earth strategic metals; Chinese stocks account for roughly one-tenth of total assets [see REMX Holdings].

iShares MSCI Australia Index Fund (EWA)

The economic health of Australia is closely tied with China’s seeing as how the two are major trading partners. In fact, it is estimated that roughly a quarter of Australia’s total exports make their way to China, which for better or for worse makes the prosperous island nation fairly dependent on its growing neighbor. EWA is one of the biggest offerings in the Asia Pacific Equities ETFdb Category, making this a popular indirect play on China whether some investors realize it or not. This ETF holds approximately 70 securities which are representative of the Australian equity market, with major allocations to the financial services and basic materials sectors [see also Easy-As-ABC ETFdb Portfolio].

IQ South Korea Small Cap ETF (SKOR)

It shouldn’t come as much of a surprise to also see South Korea on this list, another major trading partner of China. The indirect play however features a twist; SKOR offers small cap exposure, and as such, this ETF provides a creatives way to tap into the local economy, although its risk/return profile is also different than most large cap-heavy international equity ETFs. From a sector breakdown perspective, SKOR features a well-balanced portfolio of over 100 equities that is well-positioned to thrive as the South Korean economy continues to growth alongside its big brother so to speak [see also ETF Misnomers: Why You Never Judge A Fund By Its Cover].

iShares MSCI Chile Index Fund (ECH)

Chile is arguably South America’s most prosperous nation and undoubtedly one of China’s biggest trading partners. This Latin American powerhouse ships close to a quarter of its total exports to China every year, and as you may have already guessed it, copper is at the top of the list. China’s ongoing infrastructure build-out will likely continue to bolster demand for all sorts of metals and raw materials in the foreseeable future, painting an optimistic outlook for its major trading partners. ECH holds approximately 40 securities and offers a sector breakdown that is quite different than most offerings in the Latin America Equities ETFdb Category; this ETF makes major allocations to companies in the utilities, financial services, and industrial sectors [see also 5 Simple ETF Trading Tips].

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Disclosure: No positions at time of writing.