iShares MSCI China Small Cap ETF (ECNS)
|ECNS At A Glance|
|Largest Holding||Digital China Holdings*|
|# Of Holdings||353*|
|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|
ECNS is one of two existing ETFs that focus on small cap stocks in the Chinese equity markets. This product has approximately $21 million in assets, and has an average daily volume of about 5,000 shares. This ETF will offer a risk/return profile that may be very different from large cap ETFs; ECNS is a potentially appealing option for establishing a more “pure play” approach to this emerging market and building a more balanced China portfolio.
Under The Hood
ECNS is one of the most diversified China products available, maintaining over 350 holdings. Moreover, no security receives a weight of more than 1.3%, avoiding the top-heavy concentrations that are common in many of the other China ETFs profiled in this report (FXI is the worst offender).
From a sector standpoint, this product features a healthy balance among its allocations, as no particular market segment receives more than 20% of total assets. ECNS has surprisingly low allocations to financials and energy, which may make it a perfect pair with a broad large cap product like FXI.
Investors should take note that while this fund is advertised as a small cap product, the majority of its holdings fall under the mid cap umbrella. ECNS does have significant exposure to small caps, but it may not be the exposure that you expected upon a brief look at this product.
In terms of advantages, ECNS has a lot to offer its investors. It has a great diversity, with a long line of holdings in which no single security is overweighted. The fund is also careful to spread out its assets across various market sectors that many large cap funds skip over altogether. This ETF’s structure as a small cap product offers investors a more concentrated exposure on the growth of the Chinese economy. ECNS will get investors “closer to the ground” so to speak, as many will find that it is a better representation of the Chinese markets when compared to a large cap product. It should also be noted that ECNS offers greater depth of holdings and a lower expense ratio than the other small cap China ETF, HAO.
There really isn’t much to dislike about the exposure offered by ECNS. When it comes to expenses, this product falls in about the middle of the range for China ETFs; though it isn’t the cheapest choice, the 0.65% in annual fees is competitive.
One drawback may be the exclusion of some important sectors; while ECNS is spread across many sectors, it fails to represent financials and energy, which are two popular segments that investors may not want to leave out. As such, this ETF may be a great complementary holding but not necessarily a perfect one stop shot for China exposure.
One area of concern with ECNS may be the liquidity; the average daily volume is far lower than other China ETFs. Though investors can still execute trades at or NAV, the use of limit orders is strongly advised.
Finally, while small cap funds come with their fair share of advantages, they certainly have their downsides. This product will be much riskier than something like FXI, as it is investing in young companies that have the potential to hit major snags and fold altogether. Investors aware of the risks can be met with great reward, or great loss from this ETF.
Overall, ECNS can be used in multiple ways in a portfolio. Its strong diversity makes it a great candidate for a core holding in a China portfolio. But perhaps the most efficient use of ECNS is as a complement to large cap funds like GXC and FXI to help round out exposure to every corner of the Chinese market.