Global X China Financials ETF (CHIX)
|CHIX At A Glance|
|Largest Holding||China Life Insurance Company**|
|# Of Holdings||37**|
|2010 Gain (Loss):||-4.31%|
|2009 Gain (Loss):||n/a|
|2008 Gain (Loss):||n/a|
|*As of 7/22/2011. **As of 7/6/2011|
CHIX is one of several sector-specific China ETFs offered by Global X, part of a suite of products that allows investors to fine tune exposure to the Chinese economy. As such, this product is likely too targeted for most investors with a longer-term focus or a buy-and-hold strategy; CHIX is more useful for those looking to put a tactical tilt towards the financial sector of the Chinese market.
Under The Hood
CHIX’s underlying index includes several Chinese financial firms, many of them among the largest banks in the world. Like many sector-specific China ETFs, this product doesn’t have the deepest portfolio; there are only about 40 holdings in total, and CHIX allocates over two thirds of its assets to the top ten holdings. That means that the portfolio is top-heavy; a relatively small handful of large banks account for the bulk of total assets. Major holdings of CHIX include China Construction Bank, Industrial & Commercial Bank of China, and Bank of China, three of the world’s largest financial institutions.
It should be noted that while the exposure offered by this ETF is concentrated in the financial sector, there is some degree of balance within this segment of the Chinese market. This ETF includes traditional banks, insurance companies, and real estate firms, spreading the risk factors around a bit and enhancing the diversification offered.
It should be noted that CHIX is heavily tilted towards giant and large cap companies; which introduces a market cap bias that could potentially diminish some of the diversification and return enhancement benefits associated with well rounded exposure to mid and small cap size equities.
Some China sector ETFs have appeal as complementary positions; they are able to add exposure to sectors that are underweighted or overlooked entirely by broad-based funds such as FXI or GXC. That isn’t really the case with CHIX, since the financial sector is often one of the largest industry weightings in broad China ETFs (FXI, for example, affords half of its portfolio to this sector).
While most China ETF are heavily biased towards financial holdings, investors looking to establish targeted long-term exposure to this corner of the market should look no further than CHIX. The precision of this ETF—it’s one of the most targeted in the equity ETF lineup—makes it useful for those with very specific expectations for the Chinese market.
Also, CHIX charges a competitive expense ratio, allowing investors to gain hyper-targeted exposure to the financial sector of the Chinese equity market, without paying significant fees. CHIX is quite a bit cheaper than the ultra-popular FXI, as well as many broader China ETFs. In addition, CHIX can be traded commission-free on Interactive Brokers, allowing investors to eliminate pesky commission fees and keep more of their returns at the end of the day.
The most substantial drawback of CHIX is the top heavy nature of the portfolio; three companies account for nearly a third of the portfolio and the top ten stocks account for nearly two thirds of total assets. In other words, CHIX doesn’t really diversify away country-specific risk; this ETF is likely to take directions from a small handful of products.
The low liquidity should also be noted; CHIX shouldn’t necessarily be avoided altogether, but investors would be wise to use limit orders when trading.
CHIX is probably best used as a tactical tool for very specific views on the Chinese economy. Investors should note the significant concentrations in this ETF as the company-specific risk is meaningful.