Global X China Technology ETF (CHIB)
|CHIB At A Glance|
|Largest Holding||China Telecom Corp**|
|# Of Holdings||30**|
|2010 Gain (Loss):||9.34%|
|2009 Gain (Loss):||n/a|
|2008 Gain (Loss):||n/a|
|*As of 7/22/2011. **As of 7/6/2011|
CHIB is another in the line of sector-specific funds focusing on China. This product features allocation to the Chinese technology sector, but unlike the majority of the Global X line, CHIB has a competitor in the Guggenheim fund, CQQQ, which offers similar exposure. CHIB can be very appealing as a complementary holding, as this ETF offers exposure to a corner of the market not given much consideration by many broad-based China ETFs.
Under The Hood
CHIB’s index is dedicated to firms whose main business operations are derived from the technology sector in China. All in all, this product holds just 30 securities, with over half of the fund’s assets dedicated to the top ten holdings. That level of concentration is not altogether uncommon in sector-specific China ETFs; investors should simply be aware the CHIB doesn’t diversify away all of the company-specific risk. CHIB’s concentration in on par with CQQQ, which contains about 40 holdings with over 60% dedicated to the top ten assets.
Compared to other sectors of the Chinese economy such as energy and financials, the tech space is relatively small. But in recent years, China has seen research and development efforts accelerate quickly and the pace of technological breakthrough quicken. Given the relatively small size, the tech sector often accounts for only a small portion of broad-based China ETFs such as FXI or GXC—despite the exciting long-term return potential. As such, this ETF can be a very appealing option for those looking to round out China exposure by beefing up the weighting to the tech sector.
CHIB is targeted in the sense that it focuses exclusively on China’s tech sector. But within this corner of the Chinese market, the portfolio is spread around reasonably well; component companies include software stocks, tech hardware companies, telecom firms, and even a few consumer services companies.
Another noteworthy fact regarding this ETF is that the majority of its holdings are large cap companies, though CHIB does differentiate itself from most sector-specific China ETFs by investing a fair amount of assets in mid cap firms. Regardless, the exposure to larger companies could skew returns as these firms may do a fair amount of business abroad as well as at home.
CHIB’s major advantages come from the unique exposure it offers to the technology sector of China. While this fund does have one direct competitor, it still remains an attractive option for those wishing to gain exposure to this unique market corner.
CHIB charges a competitive expense ratio, allowing investors to invest in a very targeted, hard-to-reach sector, without losing gains to exorbitant fees. This ETF beats out its competitor, CQQQ, which charges fees of 0.72%. On top of this, CHIB can be traded commission-free on Interactive Brokers, another advantage that its CQQQ cannot match.
On the negative side of things, CHIB is especially top-heavy; a relatively small collection of individual stocks accounts for a big percentage of total assets. For investors looking to minimize the weighting afforded to any one company, that feature may be somewhat undesirable.
It should also be noted that CHIB features low volume and AUM. Investors can still gain exposure to liquidate positions relatively easily, but investors would be wise to avoid market orders when trading this ETF.
Similar to CHIQ, this ETF may have major appeal as a complementary position; it offers a way for investors to access a corner of the Chinese market with exciting long-term growth potential that is underrepresented in most broad-based China ETFs. We’d like CHIB more if the portfolio were a bit deeper and more balanced.