Global X China Energy ETF (CHIE)
|CHIE At A Glance|
|Largest Holding||PetroChina Company**|
|# Of Holdings||29**|
|2010 Gain (Loss):||5.98%|
|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 energy sector, and is the only option available to U.S. investors seeking to access this corner of the Chinese market. CHIE probably isn’t useful for the majority of investors out there, but a closer look at the nuts and bolts of this fund might result in some additional opportunities to put this ETF to work.
Under The Hood
Like most sector-specific ETFs, CHIE’s portfolio is somewhat limited; this ETF consists of about 30 different Chinese energy stocks. But within the energy sector, there is actually a fair amount of diversification within that corner of the market.
While the majority of CHIE is traditional oil and gas companies and coal-related stocks, the fund also includes a decent allocation to alternative energy firms (about 20%) and minor weightings to electric companies and energy equipment and services as well. Given China’s position as a leader in the development of alternative energy technologies, CHIE can potentially deliver unique exposure that most China ETFs don’t provide.
CHIE offers exposure to both the energy sector of yesterday in China—traditional coal-fueled power plants and oil and gas drilling—as well as the energy industry of tomorrow. This ETF, of course, does not offer pure play exposure to either of those sub-sectors; CHIE is a blend of companies focused on petroleum-based products and those focused on technologies such as wind and solar power.
For investors looking to make a tactical bet on China’s energy sector, CHIE is the only game in town. 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.
CHIE is relatively cheap, especially given the aforementioned granularity. Generally, investors can expect sector-specific ETFs to be more expensive than broad-based counterparts, but this product is more cost efficient than both PGJ and FXI. And like all Global X ETFs, CHIE is eligible for commission-free trading on the Interactive Brokers platform, potentially enhancing the appeal of this fund from a total cost perspective.
The CHIE portfolio is relatively limited with only about 30 names, and is also top-heavy in nature; ten stocks account for about 70% of the fund’s total assets. With four holdings making up more than 10% of holdings, CHIE has a fair amount of company-specific risk—something most ETF investors hope to avoid.
Moreover, it should be noted that CHIE consists almost exclusively of large cap stocks, a feature that may be undesirable for some investors looking to get “closer to the ground” in China by tapping into smaller firms. The focus on large caps may dull long-term growth potential, and is also more likely to include state-owned companies. The Chinese government has large ownership interests in many of CHIE’s holdings, a factor that should perhaps be taken into consideration when molding China exposure.
For most investors building a long-term, buy-and-hold portfolio, CHIE won’t have much appeal. Because most broad-based China ETFs maintain hefty allocations to the energy sector, this fund similarly may not have much value as a complementary position to round out exposure (whereas an ETF such as CHIQ might).
While perhaps not useful as a portfolio “building block,” CHIE can be used in a number of more tactical roles: those looking to play a very specific investment thesis may find CHIE to be exactly what they’re looking for, and applications within long/short trades (such as long CHIE / short XLE) might also be quite interesting.