Emerging markets have been down lately but the long-term outlook remains sound. A good way to profit from that outlook with less risk is through low-fee exchange traded funds (ETFs). Here are two we follow regularly.
ISHARES FTSE/XINHUA CHINA 25 INDEX FUND (New York symbol FXI; us.ishares.com buy or sell through brokers) is an ETF that aims to track the FTSE/Xinhua China 25 Index, which is made up of the 25 largest and most liquid Chinese stocks. All of the stocks in the index trade on the Hong Kong exchange. Some also trade as American Depositary Receipts (ADRs) on the New York exchange.
The fund’s top holdings are China Mobile, 10.5%; China Construction Bank, 8.7%; Industrial & Commercial Bank, 7.4%; Tencent Holdings, 6.8%, Bank of China, 5.9%; PetroChina, 4.0%, CNOOC, 4.0%; China Shenhua Energy, 3.9%; China Life Insurance, 3.9%, and Ping An Insurance, 3.9%.
The fund’s holdings give it the following industry breakdown: Financials, 52.1%; Telecommunications, 16.7%; Oil and Gas, 11.8%; Technology, 6.8%, Basic Materials, 5.0%; and Consumer Goods, 3.2%. Its expense ratio is 0.73%.
Chinese stocks have dropped lately, along with global markets. Investors fear that slowing expansion of the money supply in the U.S. and tighter loan restrictions in China will stall the slowly recovering global economy.
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MARKET VECTORS VIETNAM ETF (New York symbol VNM; www.marketvectorsindices.com; buy or sell through brokers) holds shares of Vietnamese companies or foreign firms that get a significant amount of their revenue from Vietnam.
The ETF’s top 10 holdings are Pha Lai Thermal Power, 8.2%; Bank for Foreign Trade of Vietnam, 7.2%; Baoviet Holdings (finance and insurance), 7.1%; PetroVietnam Fertilizer and Chemical, 6.9%; Vincom Corp. (real estate), 6.8%; Saigon Thuong Tin Commercial Bank, 5.3%; Gamuda Bhd (a Malaysiabased construction group), 5.2%; Minor International (a Thailand-based firm with hotels and fast-food restaurants in Vietnam), 4.4%; Vietnam Construction and Import-Export, 4.3%; and Oil & Natural Gas Corp. (an India-based oil and gas company), 4.2%.
Market Vectors Vietnam ETF’s industry breakdown is as follows: Financials, 36.2%; Energy, 19.9%; Industrials, 14.5%; Materials, 10.0%; Utilities, 8.2%; Consumer Discretionary, 5.3%; and Consumer Staples, 3.7%. Its expense ratio is 0.76%.
Investing in Vietnam entails above-average political and business risk. Market Vectors Vietnam ETF cuts this risk by investing part of its assets indirectly in Vietnam by buying shares of firms that are based outside the country but still do business there. That’s a better approach than adding thinly traded or illiquid shares of smaller Vietnamese firms.
In the latest issue of Canadian Wealth Advisor, we look at the long-term outlook for a rebound from Chinese stocks. We also at the outlook for Vietnam’s economy and the progress that is begin made on political and economic reforms. We conclude with our clear buy-hold-sell advice on both of these exchange-traded funds.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Do you think the main benefit Canadian investors derive from Asian economies, and particularly China’s, is that of a strong source of demand for Canadian natural resources? Or are you willing to commit a portion of your portfolio to Asian investments, through ETFs, mutual funds or individual stocks? Let us know what you think.
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