Global X China Materials ETF (CHIM)
|CHIM At A Glance|
|Largest Holding||Dongyue Group**|
|# Of Holdings||32**|
|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|
CHIM 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; CHIM is more useful for those looking to put a tactical tilt towards this sector of the Chinese market.
Under The Hood
CHIM seeks to replicate a benchmark that includes Chinese materials companies, a corner of the market that includes stocks that may exhibit sensitivity to raw materials prices. Given the tremendous demand for raw materials in China to support ongoing urbanization and infrastructure initiatives, this sector figures to benefit from strong demand for the foreseeable future. Because profits of materials firms may depend on prices for their products, this ETF may exhibit sensitivity to changes in commodity prices.
CHIM’s holdings are split between metals and mining companies, which make up the majority of the portfolio, and chemical companies. That means that CHIM provides indirect exposure to a number of different natural resources including copper, steel, gold, and aluminum.
The underlying index is comprised of securities that are available to foreign investors. As such, the CHIM portfolio may include H-Shares and Red Chips (Hong Kong-listed companies) and Chinese ADRs and GDRs. That may limit the exposure offered to the Chinese materials sector, though CHIM is similar to almost every other China ETF in this regard.
Most broad-based China ETFs include meaningful allocations to materials. So unlike China ETFs focusing on the consumer sector, CHIM might not be vital for rounding out exposure.
CHIM is the only ETF option out there for pure play exposure to China’s materials sector; investors looking to tap into this corner of the market don’t really have another option to choose from. That might be just fine, as this ETF does a nice job of maintaining a balanced portfolio (no stock accounts for more than about 6% of total assets) at a very competitive price point (the expense ratio of 0.65% is very reasonable, especially considering the nature of the exposure offered).
Like all Global X ETFs, CHIM is eligible for commission-free trading on the Interactive Brokers platform; that should further enhance the value proposition to cost-conscious investors interested in this corner of the market.
Though balanced, the CHIM portfolio is somewhat shallow; there are only about 30 component companies. Moreover, the portfolio consists primarily of large and mid cap companies. CHIM is more diverse than some China ETFs that focus exclusively on mega cap and large cap stocks in that regard, but a heavier allocation to small caps could enhance the long-term growth potential.
It’s also worth noting that CHIM is a relatively small product, and can trade only a few hundred shares per day. Investors looking to establish a large position may be wise to contact an alternative liquidity provider, while those looking to make a smaller purchase should definitely use limit orders when trading CHIM.
CHIM can be a useful tool for fine tuning China exposure, giving exposure to an asset class that should generally exhibit relatively high volatility. But many investors won’t have much interest in such a precise product; while CHIM likely won’t be of much use for the vast majority of investors out there, it can be a very useful tool for those looking to implement a very specific investment strategy.
<<<<<Previous: In-Depth Analyst Reports: China Sector ETFs…..CHIM Analyst Report…..Next: CHIQ Analyst Report>>>>>