Topic: ETFs

Only one of these two Asian ETFs is a buy right now

We believe conservative investors can have as much as 10% of their portfolios in foreign stocks. Purchasing exchange-traded funds (ETFs) with an overseas focus is an effective way to do so.

The best of these funds offer low management fees and well-diversified, tax-efficient portfolios of high-quality stocks.

The ETFs profiled below are from one of the wealthiest markets in Asia as well as one of the region’s most promising emerging markets. The U.S.-China trade dispute effect remains strong, as does the impact of a strong U.S. dollar. We see only one as a buy right now although both have good long-term prospects.

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VANECK VECTORS VIETNAM ETF (New York symbol VNM; buy or sell through brokers) holds Vietnamese companies and foreign firms that get a significant share of their revenue from the Southeast Asian nation.

The ETF’s top holdings are Vingroup (conglomerate), 8.28%; Vietnam Dairy, 8.2%; Vinhomes (conglomerate), 7.12%; Bank For Foreign Trade of Vietnam, 6.0%; No Va Land Investment Group, 5.50%. The ETF’s MER is 0.66%.

The fund cuts some of Vietnam’s above-average political risk by investing part of its assets in firms based outside the country while doing a lot of their business there. It’s a better approach than adding the thinly traded, or illiquid, shares of smaller domestic firms.

Like many emerging markets, Vietnam has dropped lately. That’s because a growing U.S. economy and rising interest rates have pushed up the U.S. dollar. This typically results in capital flowing to the U.S. from emerging markets. That hurts investments in those economies. Even so, Vietnamese exports will likely benefit from trade tensions between China and the U.S.

Regardless, the Vietnamese economy also offers diversification and the potential for above-average returns.

Recommendation in Canadian Wealth Advisor: VanEck Vectors Vietnam ETF is a buy for aggressive investors.

ETFs: Government policy and U.S. tariffs should spur Chinese domestic spending

INVESCO CHINA SMALL CAP ETF  (New York Exchange symbol HAO; buy or sell through brokers; changed its name from Guggenheim China Small Cap ETF in May 2018 when Invesco Ltd. bought Guggenheim’s ETF business.

This particular Invesco ETF aims to track the AlphaShares China Small Cap Index. It’s made up of the 307 Chinese stocks that foreign investors are allowed to hold and that have market caps of less than $1.5 billion. The ETF has an MER of 0.75% and yields a high 4.66%.

Top holdings for this $66.7 million fund include China Communications Services, 1.20%; China International Capital, 1.13%; Li Ning (shoes and sporting goods), 1.08%; Shenzhen International Holdings (conglomerate), 0.99%; ZTE Corp, 0.99%.

China continues to work on reducing the high levels of consumer and business borrowing. It also continues to tighten environmental regulations. Both these efforts will limit economic growth. But as the country matures further and wages rise, domestic spending should increase to compensate.

U.S. threats of additional tariffs on Chinese goods should also spur the Chinese government to encourage domestic consumption. Invesco China Small Cap ETF is well-positioned to benefit from that trend but for now the near-term picture is uncertain.

Recommendation in Canadian Wealth Advisor: Invesco China Small Cap ETF is a hold for aggressive investors.


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