No longer ignored, the recently impressive rallies among China exchange traded funds are, finally, getting some much-deserved attention.
That means a lot of eyeballs are turning to the iShares China Large-Cap ETF (NYSEArca: FXI). With $5.3 billion in assets under management, FXI is the largest China ETF. It is also the most heavily traded and home to the most robust options market of any China ETF. [Ignored Rally for China ETFs]
FXI also has some well-documented flaws that make the ETF overrated in the eyes of some.
“FXI’s flaws make up a double whammy. First, while it’s the largest China ETF, with $5.3 billion in assets, it’s also the narrowest. It tracks 25 stocks, and has a disproportionate 55 percent allocation to the financial sector,” reports Eric Balchunas for Bloomberg.
In fairness, FXI has surged 23.4% since March 20, when it and some rival China ETFs showed signs of bottoming. That is an undeniably impressive performance. What also cannot be denied is that long-term investors have been disappointed by FXI.
Over the three years ending Aug. 1, FXI is up just 3.6%, according to ETF Replay data. That is less than half the return posted by the iShares MSCI China ETF (NYSEArca: MCHI) and less than a third of the performance by the SPDR S&P China ETF (NYSEArca: GXC) over the same period. [A Resurgent China ETF]
Perhaps that is not a coincidence when considering MCHI and GXC hold 142 an 283 stocks, respectively. MCHI charges 0.62% per year while GXC charges 0.59%, both below the 0.74% annual fee on FXI.
As Balchunas notes, FXI has some new competitors in addition to GXC and MCHI. That group includes the db X-trackers Harvest MSCI All China Equity Fund (NYSEArca: CN).
CN is up 13.6% since April 30, trailing FXI over the same period. However, if GXC and MCHI are accurate indicators, a broader approach to Chinese equities will prove superior to FXI over time. CN offers exposure to China A-shares in addition to China B-shares, China H-shares, China Red Chips, China P-Chips, China ADRs, and securities of Chinese companies listed in the US and Singapore. The ETF holds nearly 150 stocks or more than five times as many as FXI. [A Chinese Buffet With This ETF]
CN’s largest holding is the db X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR). ASHR has outpaced FXI by 170 basis points over the past month.
Three-Year Chart FXI vs. GXC and MCHI
Chart Courtesy: ETF Replay