Invest in the Capitalist Side of China with This ETF

China has been a hot place to invest for many years.

The country’s economy is still developing rapidly, as has been the trend for quite some time as the big money tries to seek out the next big thing that could produce huge returns. Of course, we’re talking about an exchange-traded fund (ETF), so we’re looking for consistent returns, not the next boom-or-bust penny stock.

There is a plethora of China-related funds out there. However, some investors may experience trepidation about investing in the country, in part because of the authoritarian leadership of its Communist Party, which owns some or all of many companies and could potentially be capricious. One possible way to avoid some of those effects is by using WisdomTree China ex-State-Owned Enterprises Fund (CXSE).

CXSE allows investors to avoid state-owned Chinese companies and thus exclude those enterprises whose fortunes could be especially sensitive to government decisions. Since the fund’s creation in 2012, it has averaged about a 13.5% return annually.

It has struggled in the last year, particularly in July after Chinese regulators cracked down on some for-profit education stocks. Indeed, a precipitous drop in just the last month now has left its one-year performance at just a 9% increase. Yet in my view, this is a temporary pullback, and one that represents a good value opportunity in this sector.

Chart courtesy of StockCharts.com

Assets under management total $1 billion, while CXSE pays a yield of 0.70% and has a reasonable expense ratio at 0.32%. The fund’s top holdings include some of the biggest and best Chinese companies. These include Tencent Holdings, 11.49%; Alibaba Group Holding, 7.14%; Meituan Dianping Class B shares, 4.85%; JD.com Inc. ADR (JD), 3.12%; and Wuxi Biologics Cayman Inc., 2.86%. There are 172 holdings in total.

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WisdomTree China ex-State-Owned Enterprises Fund (CXSE) uses a novel strategy to appeal to investors who prefer to avoid undue governmental influence to the degree that is possible in China. Interested investors may wish to conduct further research to consider whether CXSE is right for their portfolios.

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.