SPDR S&P China ETF (GXC)
|GXC At A Glance|
|Largest Holding||China Construction Bank**|
|# Of Holdings||151**|
|2010 Gain (Loss):||7.58%|
|2009 Gain (Loss):||60.45%|
|2008 Gain (Loss):||-48.72%|
|*As of 7/22/2011. **As of 7/6/2011|
GXC is one of the most popular ETFs for achieving exposure to Chinese stocks, and has many advantages over the larger and more frequently traded FXI. This fund doesn’t experience many of the same drawbacks that can plague other China ETFs, though there are some elements of the underlying portfolio that are worth noting (and perhaps adjusting for).
Under The Hood
The GXC portfolio consists of more than 150 individual stocks, giving a depth of exposure that most China ETFs can’t match. FXI, for example, has only 25 individual holdings. GXC also maintains a broader sector representation than many other China ETFs, making this fund an appealing option for those looking to overweight China in a long-term portfolio.
Some elements of the underlying portfolio may be less than optimal; there is a fair amount of concentration among the largest components of the index; ten stocks account for about 45% of total assets, meaning that the smallest 140 components combine to account for just over half of the portfolio. In other words, while GXC casts a relatively wide net it also remains quite top-heavy.
The sector profile is balanced relative to FXI, but still leaves room for fine tuning to achieve what we consider to be an optimal China exposure. Chinese banks make up nearly half the portfolio, and the health care and utilities sectors receive minimal allocations. This ETF does maintain a meaningful consumer allocation, a critical component to any long-term China strategy.
Finally, it should be noted that GXC consists primarily of mega cap and large cap stocks. That isn’t necessarily a negative, as large cap Chinese stocks have performed quite well historically and may offer a way to invest in the Chinese economy without taking on excessive risk. But large cap-heavy portfolios may bring certain biases, and might offer less of a “pure play” on the local economy compared to small cap equities.
One of the major advantages of GXC is the relatively low expense ratio; with annual fees of just 0.59%, GXC is one of the cheapest ETFs in the China Equities ETFdb Category, and a bargain for achieving targeted emerging markets exposure. GXC’s fees are quite a bit lower than FXI, a nice benefit considering that this ETF also offers a much broader portfolio.
It should also be noted that this ETF is eligible for commission free trading within TD Ameritrade accounts, making it even more appealing for investors considering the total cost of a potential ETF investment.
Besides some of the concentrations highlighted previously, there isn’t a whole lot to dislike about GXC; the portfolio may not offer a one stop shop for China exposure, but the depth of holdings gives investors a much better base than many of the alternatives. This ETF isn’t nearly as liquid as FXI, but most investors should have no difficulty establishing or liquidating a position efficiently.
It should be noted that while GXC is optionable, the market for those securities isn’t nearly as liquid as FXI.
For investors looking to achieve exposure to China for the long haul, we like GXC as one part of a more comprehensive approach. This ETF offers broad-based exposure to China’s large cap companies, and the combination of a broad-based portfolio, relatively solid sector diversification, and extremely competitive expense ratio should be appealing to anyone considering an increase in China access.
Complementing GXC with a small cap-focused ETF such as HAO or ECNS should result in well-rounded China exposure.