ETF Talk: China is Rising Again

Doug Fabian

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

China is a country that has achieved massive growth during the past century. As other economies around the world struggle, China looks ready to rebound in earnest after enduring a modest slowdown in recent quarters. This rebound is good news for investors who are languishing in less appealing markets elsewhere on the globe.

The exchange-traded fund (ETF) that I want to bring to your attention this week is one of my Successful Investing newsletter’s current picks, iShares FTSE/Xinhua China 25 Index (FXI). China’s growth looks promising and investors can use ETFs such as FXI to tap that market.

This fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE China 25 Index. FXI generally invests at least 90% of its assets in securities of the index and in depositary receipts of securities in the index. The index is designed to track the performance of the largest companies in the Chinese equity market that are available to international investors. The index consists of 25 of the largest and most liquid Chinese companies.

Up 9.21% in 2012, FXI closed the year with a rapid climb. With the United States dealing with the fallout from the fiscal cliff fiasco and Europe mired in its own monetary woes, China’s recent and continuing growth looks to push up the value of ETFs like FXI for the near future.

FXI is weighted most heavily in the financial services sector, with 58.17% of its assets invested there. Three other sectors, communication services (16.34%), energy (14.89%) and basic materials (10.59%) round out the fund’s holdings. In terms of individual companies, FXI’s top 10 holdings comprise a sizable 61.76% of its assets. The top five, in order of percentage of assets held, are: China Mobile (9.84%), China Construction Bank Corp H Shares (9.56%), Industrial and Commercial Bank of China Ltd (8.73%), CNOOC Ltd (6.85%) and Bank of China Beijing (6.15%).

If things continue along the path set by recent trends, expect China to maintain its growth. China will be especially enticing if the Western regions of the United States and Europe remain in their current economic predicaments. If so, look for FXI to outperform the others significantly.

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 email me by clicking here. You just may see your question answered in a future ETF Talk.

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