iShares MSCI Hong Kong Index Fund (EWH)

Published on by on August 18, 2011

EWH At A Glance
Issuer: iShares
Structure: ETF
Expense Ratio: 0.53%*
Inception Date: 12/03/1996
Largest Holding AIA Group**
Weight: 8.5%**
# Of Holdings 43**
AUM: $2,069M*
ADV 4,928,780*
2010 Gain (Loss): 24.16%
2009 Gain (Loss): 54.94%
2008 Gain (Loss): -50.29%
*As of 7/22/2011. **As of 7/6/2011

EWH is one of the oldest ETFs to hit the market, and still remains one of the most popular ways for establishing indirect exposure to the Chinese economy with a developed market tilt. EWH has just over $2 billion in assets, and close to five million shares trade hands every day. For investors looking to access China through the SAR of Hong Kong, EWH is certainly an interesting option. But this approach has some potential drawbacks, a result of the structure of EWH and the limitations of Hong Kong as a proxy for mainland China.

Under The Hood

This fund offers exposure to the largest and most liquid Hong Kong companies, a relatively small economy that maintains a complicated but close relationship with China. Hong Kong, along with Macau, is a Special Administrative Region of China. Operating under a principle of “one country, two systems” Hong Kong maintains strong economic ties with China but maintains a unique political system and a high degree of autonomy in many matters.

It’s important to note that Hong Kong is not mainland China, and that some of the return offered through exposure to companies operating primarily in mainland China will be diminished through an investment in Hong Kong’s market. However, Hong Kong ETFs may offer a way to access China while limiting the risk involved—a potentially appealing proposition for certain investors.

As far as the portfolio goes, EWH suffers from many of the biases of the first generation of international equity ETFs. The first potential drawback is the shallow nature of the portfolio. The fund holds just 42 securities in total and over 50% of the fund’s total assets are locked up in the top ten holdings. This suggests that large cap companies dominate the holdings profile of the fund and that smaller companies are often squeezed out. By comparison, YAO holds more than 300 individual stocks, and GXC invests in more than 150.

Also of concern is the sector breakdown. Close to 60% of the fund’s total assets are in financial companies, a massive weighting to afford to any one industry. Other double digit allocations go towards utilities, consumer discretionary firms, and industrials. In fact, health care, technology, and telecommunications make up less than 2% of the fund’s total assets.


The biggest advantages of EWH are its impressive liquidity and its status as one of the only Hong Kong focused funds on the market. EWH has the second highest volume out of any product in the China space, only surpassed by the extremely popular FXI.

Additionally, since the fund focuses on Hong Kong, investors are able to access the China growth story- to an extent– without the political interference that is often seen in many mainland companies. Since Hong Kong is a relatively autonomous region of China with a very capitalist system, companies are allowed to flourish relatively unfettered as compared to their brethren on the mainland who must always take the opinions of Beijing into account.

Finally, it is important to consider that all of the component companies in the underlying index trade on the Hong Kong Stock Exchange, a bourse that has far greater levels of liquidity and transparency than some of the mainland exchanges. This is especially true of markets based in Shenzhen which track the A-Shares, thus making it easier for investors to know exactly what they are getting into with this fund.


Besides the potential drawbacks in the portfolio highlighted above, some argue that this product doesn’t give direct exposure to the mainland economy instead. Whether this is a ‘con’ or not depends on an individual investor’s preference but one could certainly not get complete China exposure with this fund.

Final Verdict

For investors looking to access Hong Kong’s unique stock market, EWH is one of the only options available. As such, this fund can be an appealing option for investors looking to establish “indirect” access to China through a developed Asian powerhouse. But the portfolio of this product has some major limitations; the extreme concentrations in financials and in a small handful of stocks make EWH unattractive for those looking for balanced exposure over the long run.

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