After a dithering start to the year, exchange traded funds tracking Chinese stocks have come roaring back. So voracious has the rally for China ETFs been that last week’s outflows from the group snapped 12 consecutive weeks of inflows.
Since the start of the third quarter, the iShares China Large-Cap ETF (NYSEArca: FXI) has hauled in $660.2 million while the rival SPDR S&P China ETF (NYSEArca: GXC) and the iShares MSCI China ETF (NYSEArca: MCHI) have added a combined $231 million. [Cash Returns to China ETFs]
The average gain for that trio since the start of the current quarter is nearly 13%, but as these and other China ETFs have previously proven, there is a time and a place for China ETFs. Add to that, tactical application of China ETFs can often prove rewarding.
Brian Singer, fund manager for the William Blair Macro Allocation Fund, told Lewis Braham of Barron’s that he currently prefers FXI and the Guggenheim China Small Cap Index ETF (NYSEArca: HAO) among China ETFs.
FXI is the largest and most heavily traded China ETF. As such, it is a favorite among institutional investors despite criticism of its small number of holdings and evidence to support the fact that FXI has lagged GXC and MCHI over longer-term time frames. FXI will soon change indices, which will nearly double its number of holdings. [Big China ETF Gets a New Index]
Over the long haul, Singer told Barron’s he prefers HAO “because smaller companies are more exposed to the local Chinese economy than large multinationals. Overall, he says the Chinese stock market is priced 25% below his estimate of fair value.”
HAO has jumped 10.5% in the third quarter.