ETF Talk: China’s New Silk Road

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Much like traders long ago who followed the Silk Road to prosperity in China, you too have the opportunity to profit from equities in the Far East. iShares MSCI China ETF (MCHI) tracks stocks in the world’s most populous nation and has the second-most assets of any China-focused exchange-traded fund (ETF), trailing only last week’s featured fund, FXI. With capital flowing into China from throughout the world, investing in this Asian giant is something you may want to consider.

MCHI is a non-diversified fund which seeks, before fees and expenses, investment results that generally correspond to the performance of a free float adjusted market capitalization-weighted index. The index measures the performance of equity securities in the Chinese equity market’s largest stocks — the top 85% based on market capitalization.

Even though this ETF has endured a minor decline of 4.11% so far in 2013, the fund had a swift rise in the closing months of 2012 — a trend which could be echoed this year. For investors interested in additional income, MCHI offers a dividend yield of 2.2%.

MCHI_103013

As an equity fund, MCHI invests most heavily in the financial services sector, with 34.03% of its assets residing there. It also has smaller allocations in a wide variety of sectors, including energy, communication services, technology and consumer cyclical, among others.

In terms of individually held companies, MCHI puts 52.33% of its total assets into its top 10 holdings. The top five of these are China Mobile Ltd., 9.33%; China Construction Bank Corp H Shares, 7.77%; Tencent Holdings Ltd., 7.51%; Industrial and Commercial Bank of China Ltd. H Shares, 7.17%; and CNOOC, Ltd., 5.08%.

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As investors continue to pour money into China following the historic example of traders on the Silk Road of antiquity, you can capitalize on that trend by betting on Chinese equities through MCHI.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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The money spigot is going to be open for a lot longer. According to most market watchers, including me, do not expect to see any kind of tapering until the spring of 2014.

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