WisdomTree Debuts First China Dividend ex-Financials ETF (FXI, CHXF, CHL, CEO, PTR)
Eric Dutram: Although worries over the Chinese market are building, it is hard to completely forget about the world’s second largest economy, and a clear engine of growth for the global economic picture. However, many investments in the nation are either targeted at high risk high reward firms, or those in the financial space as these securities tend to dominate the investment landscape for those seeking more China exposure.
In fact, all three of the most popular China ETFs currently on the market have financials as their top sector with all funds putting at least 25% into the space. Furthermore, in the most popular China ETF on the market, the iShares FTSE China 25 Index ETF (NYSEARCA:FXI), over half the portfolio is dedicated to financials, including 37% to banks and 15% to insurance (read Guide to the 25 Most Liquid ETFs).
Clearly, when many investors look to China ETFs they are getting an incredible amount of exposure in one sector. In order to give investors a different look at this important market, without the financial holdings, WisdomTree has released a new fund the China Dividend ex-Financials Fund (NASDAQ:CHXF) to investors.
This product looks to charge investors 63 basis points a year and provide diversified exposure to various segments in the Chinese economy. This is done by tracking the WisdomTree China Dividend ex-Financials Index, which is a benchmark of dividend paying stocks outside the financials sector.
It includes the 10 largest dividend paying stocks, by market cap and excluding financials, in each sector. Currently, the index has over 60 components and while it is heavily tilted towards large caps, it has over 40% in securities that are mid caps or smaller (see more in the Zacks ETF Center).
With this focus, and a market cap weighted approach, the fund is heavy in energy (24.5%), materials (14.7%), and telecoms (14.5%).The top individual holdings include giants China Mobile (NYSE:CHL) at 8.4%, followed by two energy firms in CNOOC (NYSE:CEO) and PetroChina (NYSE:PTR).
This approach offers investors a stark choice in the China ETF world for those who are looking for large cap exposure in the space. However, the product, due to its biases, could also be used as a compliment to current China exposure, helping to round out assets for those who are currently heavily concentrated in the Chinese financial sector (read Forget FXI: Try These Three China ETFs Instead).
Beyond that, CHXF could also be considered a yield destination for investors, something that is not always easy to do in the emerging market world. This could be especially helpful for investors seeking alternative plays in the dividend ETF world that are focused in on a market that many investors may still not have a ton of exposure to.
However, risks to the Chinese economy remain, especially as sinking growth levels and worries over a smooth leadership transition hit investor confidence. Still, the country will probably be a major player on the global economic stage and for that reason it deserves at least some level of exposure in most long-term focused portfolio (see Profit from China’s Stimulus with this Infrastructure ETF).
For this reason, a closer look at CHXF could be a great choice in this market environment as a way to achieve diversified Chinese exposure. Not only does the fund avoid one of the more overinvested in sectors of China, but its dividend and large cap focused approach could help to reduce volatility levels and make this new WisdomTree fund an intriguing one for those seeking to add to their China assets at this uncertain time.
In 1978, Len Zacks discovered the power of earnings estimates revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank, a peerless stock rating system whose Strong Buy recommendation has an average return of 26% per year.