The already crowded field of ETFs offering exposure to China
(approximately 230 funds) got a little more crowded today with the
introduction of the WisdomTree China Dividend Ex-Financials Fund (
With there being no dearth of China ETF options from which
investors can choose, new entrants to the arena must to do
something to standout in order to poach assets from previously
existing funds. As its name implies, the WisdomTree China Dividend
Ex-Financials Fund does do something different and that is skimp on
financial services stocks.
WisdomTree has found success with the ex-financials strategy in
the past as the WisdomTree Dividend ex-Financials Fund (NYSE:
) and the WisdomTree International Dividend ex-Financials Fund
) have about almost $1.7 billion in combined assets under
The strategy, while new to a China ETF, is arguably overdue as
some China-specific funds
have been criticized for excessive weights
to the financial services sector. For example, the iShares FTSE
China 25 Index Fund (NYSE:
), the largest China ETF, allocates 52.3 percent of its weight to
financials. The SPDR S&P China ETF devotes almost 32 percent of
its weight to the sector.
"The case for investing in China has become increasingly
apparent to investors, but we believe some of the most popular
China index-bases strategies fail to offer diversified exposure,"
WisdomTree Chief Invest Strategist Luciano Siracusano in a
statement. "We think investors should be able to access the growth
potential of China without taking such concentration risk."
CHXF's largest sector weight is energy at almost 24.6 percent
and China's three largest oil companies - PetroChina (NYSE:
), Sinopec (NYSE:
) and Cnooc (NYSE:
) - are found among the ETF's top five holdings. Materials and
telecommunications names each account for more than 14 percent of
the new ETF's weight while industrials and consumer staples each
garner allocations north of 13 percent.
Yield information is not yet available for the ETF, but the
index has a dividend yield of almost three percent,
according to WisdomTree data
Some investors may wonder if skirting Chinese financials does
payoff. At the very least, it does help lower a portfolio's
"An equal-weighted blend of the non-financial sector indexes in
China, "China ex-Financials," had an average annual standard
deviation of about 2 percentage points less than the MSCI China
Index and 10 percentage points less than the MSCI China Financials
Sector Index over the 10 years from June 30, 2002, through June 30,
2012," according to a note written by WisdomTree Research Director
Importantly, reducing exposure to Chinese financials has lead to
better returns this year. The Guggenheim China Small-Cap ETF (NYSE:
) and GXC have both outperformed FXI with lower weights to
"China is one of the more important economic actors on the
global stage, and as such its investment markets are expected to
continue attracting significant attention," Schwartz wrote.
"Anytime this occurs, it is important to take a step back,
especially when considering the performance of equity market
indexes. How constituents are selected and then weighted has a
major influence on the performance that these indexes measure.
Given that we imagine many investors may not want to take a sector
bet resulting in 50% exposure in China's equities weighted directly
in the financial sector, we think it makes sense to consider an
alternative way of building an index for China's equities."
For more on China ETFs, click <ahre>here.
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