Given the risks that China faces, emerging market ETF investors can look to the EGShares EM Core ex-China ETF (NYSEArca: XCEM) as a way to tap into developing country growth without being exposed to Chinese equities. XCEM is up 14.9% year-to-date.
XCEM tries to reflect the performance of the EGAI Emerging Markets ex-China Index, which tracks up to 700 emerging market companies, excluding those domiciled in China and Hong Kong. Top country weights include South Korea 18.7%, Taiwan 13.9%, India 13.1%, Brazil 13.1% and South Africa 10.4%.
In contrast, other emerging market equity ETFs include a large tilt toward China, and China’s exposure within major emerging market benchmarks is growing as indexers plan to increase weights to China through A-shares.
For instance, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM), which tracks the widely observed MSCI Emerging Markets Index, includes a 25.2% tilt toward China, followed by 14.5% South Korea, 12.2% Taiwan, 8.4% India and 7.3% Brazil. MSCI has yet to pull the trigger on including Chinese A-shares into its index.
“The XCEM fund is a strong fit for investors who are looking to be more conservative in their approach to China without sacrificing opportunities in other emerging markets,” EGA Managing Director Jay McAndrew said. “It also addresses the needs of investors who have a point of view on China and are looking for greater control over the size and style of their exposure to this market.”
EGShares EM Core ex-China ETF