Seeking China’s ‘Wave of the Future’ with this Fund

Doug Fabian

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

Technology stocks, often considered the “wave of the future,” can provide relatively strong growth prospects because the industry evolves at a faster rate than many others. One exchange-traded fund (ETF) that combines the promise of technology with the high-growth emerging market of China is the Guggenheim China Technology ETF (CQQQ).

This fund invests in technology companies based in mainland China, with allowances made for Hong Kong and Macau-based companies if most of their revenues come from China, Hong Kong and Macau. Market capitalization is a factor for index inclusion here, with a requirement of $200 million being the threshold for initial inclusion in the fund.

As a result, CQQQ’s top holdings are some of the biggest names in Chinese technology, and nearly 60% of the assets are invested in Hong Kong-based companies.

cqqq

Over the last year, this fund has increased in value by 8.3%, not quite living up to the 12% return posted by the S&P 500 in that time. It pays a 1.66% yield and has an expense ratio of 0.70%.

The fund’s total assets are about $47 million. This means that it is below my recommended threshold for investment, but its strategy is one that is worth bringing to your attention. And 2017 could be a very different year for international and emerging stocks than what we saw in 2016.

The top five holdings for this fund are Tencent Holdings, 10.15%; Alibaba Group, 8.83%; Baidu Inc., 8.02%; NetEase Inc., 6.94%; and Semiconductor Manufacturing, 4.79%. The fund’s assets are concentrated in its top holdings because of its market-cap weighting. All told, there are about 75 positions in the fund at any given time.

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If investing in a double-whammy of growth possibilities appeals to you, Guggenheim China Technology ETF (CQQQ) could be a good place to start your research.

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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Even with intense volatility and fickle boom-and-bust cycles, technology investing has been incredibly profitable for long-term investors. The industry is unique in that it avails itself liberally to Wall Street, Main Street and corporate America alike. Despite the lingering wariness caused by the dot-com bust of the 2000s even for seasoned investors, outsized returns from the Information Technology sector in the last few years have whetted the appetites of many.

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