ETF Trends
ETF Trends

The topic of an economic and political balance of power between the United States and China has always been a hot topic. Some believe, however, that there are other more important things to consider when it comes to the emerging nation and its exchange traded funds (ETFs).

Simon Johnson of Baseline Scenario states that two things to look at when analyzing China are productivity and rent-seeking.  China is very well known for investing in activities that raise productivity, which is evident in their emphasis on infrastructure and manufacturing.

Johnson, who outlines rent-seeking as “effectively a tax extracted by one sector from the rest of the economy,” feels that we’re in a perilous path by rent-seeking in the financial sector, boosting it at the expense of taxpayers.

Johnson suggests that finance, in its modern American form, is not productive. If we continue to focus on this and China continues to focus on making things, then we could be in trouble. Year-to-date, China has performed very well and the nation’s emphasis on productivity has served it will in recent months.

There are a number of ways to play China via ETFs. Don Dion of states that the Claymore/AlphaShares China Small Cap (HAO) is the best Chinese ETF in terms of performance. It’s up 75.7% year-to-date with an expense ratio of 0.7%. It also benefits from a historical tendency for small-cap stocks to perform well in recovery periods. The fund has wide exposure to private companies, rather than state-owned ones, as well.

Another notable ETF is the iShares FTSE/Xinhua China 25 Index (FXI), which is up 41.8% year-to-date, which is more concentrated and heavily invested in large caps.

For more stories on China, visit our China category.

Kevin Grewal contributed to this article.

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.