A Surprisingly Good Year for Some China ETFs

October 28th at 8:00am by Tom Lydon

The iShares China Large-Cap ETF (NYSEArca: FXI), the largest China ETF, is down 7.6% this year, a loss that is more than twice as bad as the downturn for the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO). That does not mean all China ETFs have been disappointments.

Several of this year’s 10 best non-leveraged ETFs have significant China exposure, including the year’s top-two ETFs, the Guggenheim Solar ETF (NYSEArca: TAN) and the Market Vectors Solar ETF (NYSEArca: KWT). [Solar ETF Rally: More Gas in the Tank]

However, the PowerShares Golden Dragon China Portfolio (NYSEArca: PGJ) is the lone China-specific ETF that ranks among 2013’s top-10 non-leveraged ETFs. PGJ “peaked in April 2011 and proceeded to stair-step down 43% by July last year. It meandered up 22% through January this year, then broke out from a cup base in May. It’s gained 59% this year and is near its 52-week high,” reports Doug Rogers for Investor’s Business Daily. 

As IBD noted, it is PGJ’s holdings that paint the picture of this fund’s substantial out-peformance of rival China funds this year. [Top-10 Performing ETFs]

With PGJ, it is Chinese Internet stocks that explain why this fund has risen to rock star status in the crowded field of China ETFs. While PGJ is not entirely devoted to Internet or technology shares, technology and consumer discretionary combine for 75% of the ETF’s sector weight. Seven of the ETF’s top-10 holdings can be accurately classified as Internet stocks, a group that includes Ctrip (NasdaqGM: CTRP) and Baidu (NasdaqGM: BIDU), the Priceline (NasdaqGM: PCLN) and Google (NasdaqGM: GOOG) of China. [This China ETF Keeps Topping Bigger Rivals]

Ctrip and Baidu, China’s largest Internet search provider, are expected to grow earnings by 26% and 27%, respectively, in 2014, IBD reported. Qihoo 360 Technology (NasdaqGM: QIHU) has also helped drive PGJ higher. Analysts see gains of 61% this year and 65% next year, according to IBD.

Those are PGJ’s top-three holdings, combining for 24% of the ETF’s weight. PGJ has 68 holdings and has brought in nearly $70 million of its $316.6 million in assets over the past 90 days, according to PowerShares flow data. 

PowerShares Golden Dragon China Portfolio

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of Google.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.