EGShares China Infrastructure ETF (CHXX)
|CHXX At A Glance|
|Largest Holding||Anhui Conch Cement Company**|
|# Of Holdings||31**|
|2010 Gain (Loss):||n/a|
|2009 Gain (Loss):||n/a|
|2008 Gain (Loss):||n/a|
|*As of 7/22/2011. **As of 7/6/2011|
This ETF offers targeted exposure to China’s infrastructure industry, making CHXX a potentially appealing tool for investors who believe that ongoing urbanization and need for modernization of outdated roads and utilities will lead to strong demand from this corner of the Chinese market.
In China, as in many emerging markets, infrastructure stands as a major hurdle to long term GDP growth and ultimately to developed status. Accordingly, many emerging markets have stepped up efforts to improve their infrastructure, making massive investments in roadways, high speed rail, airports and seaports, and other public venues such as sports stadiums. CHXX may be useful as a tactical tool for investors who believe that infrastructure spending will surge in coming years in order to support China’s red hot economy.
Under The Hood
While CHXX is concentrated in China’s infrastructure industry, holdings are reasonably well balanced within this corner of the market. The underlying portfolio consists of about 30 stocks, which include construction & materials companies, real estate firms, metals and mining stocks, engineering companies, telecom providers, and even oil equipment and services companies. In other words, CHXX offers exposure to companies in a number of different sectors that are all connected to infrastructure activity in the world’s second largest economy. If China follows through on its ambitions plans to overhaul the country’s public transport systems and modernize infrastructure in both rural and urban areas, CHXX should perform well over the long term as the component stocks benefit from increased demand for their services.
It should be noted that CHXX is unique from many of the other “sector-specific” ETFs included in this report; represented in the underlying holdings are stocks that technically fall into the materials, industrials, real estate, telecom, and utilities sectors. Rather, these components are bound together by a common investment thesis; they all stand to benefit from increased infrastructure spending in China.
The targeted exposure offered by CHXX is one-of-a-kind; there are no other ETFs offering targeted exposure to China’s infrastructure industry. Moreover, as mentioned above the underlying portfolio is somewhat balanced in terms of sub-sectors; a number of different types of companies are represented, diluting the impact of any one type of company or external factor on the performance.
Like almost all targeted international ETFs, CHXX is relatively concentrated. The underlying portfolio has about 30 names in total, and ten of those combine to make up more than half of total assets. Also somewhat predictably, the heavy tilt towards large caps is present; only a small portion of the portfolio is dedicated to small or mid cap companies.
One more potential drawback of CHXX is the relatively high expense ratio; at 85 basis points, this ETF is one of the most expensive highlighted in this report. The fees aren’t unreasonable given the granularity of exposure offered, but CHXX is certainly on the expensive side compared to its peers.
CHXX offers a unique way to play a compelling long-term investment theme, especially with detailed plans for increased spending on China’s numerous infrastructure projects in coming years. Accordingly, this ETF may have appeal as a tactical satellite allocation within a long-term portfolio.
Investors should also note that there are more broad-based infrastructure ETFs out there that focus generally on emerging markets: EMIF and PXR may also be worth a closer look.