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Investors looking to diversify their portfolios geographically have a range of options, and getting into China — the world's second-largest economy — can be particularly appealing. If so, one route is to buy China exchange-traded funds.
Best-performing China ETFs
Below is our list of best-performing China equity ETFs.
Symbol | Fund name | 5 Year Return |
|---|---|---|
KGRN | KraneShares MSCI China Clean Technology Index ETF | 9.88% |
KBA | KraneShares Bosera MSCI China A 50 Connect Index ETF | 9.28% |
CHIE | Global X MSCI China Energy ETF | 7.44% |
CHIQ | Global X MSCI China Consumer Discretionary ETF | 6.11% |
CNYA | iShares MSCI China A ETF | 4.71% |
AFTY | Pacer CSOP FTSE China A50 ETF | 3.35% |
KFYP | KraneShares CICC China Leaders 100 Index ETF | 3.30% |
Source: VettaFi. Data is current as of August 1, 2023 and is for informational purposes only.
What are China ETFs?
China ETFs are exchange-traded funds that track publicly listed Chinese companies and give investors exposure to Chinese markets without having to directly purchase those stocks. Instead, the issuing company purchases the underlying asset (such as stocks, bonds or currency), and fund investors purchase shares in the fund. As the underlying assets rise and fall, so does the value of your fund investment.
Researchers say investors often suffer from “home bias” — the tendency to purchase domestic stocks for their portfolio. But U.S. stocks make up only about 56% of global equities. Exposure to international markets, especially a large player such as China, gives investors the benefit of diversification as one region’s markets may rise while others fall.
Investing in China ETFs carries risks, such as trade tensions with the U.S. and the aftermath of the coronavirus outbreak. Still, many investors are placing long-term bets on the world’s second-largest economy.
» Learn more: What are ETFs?
How to invest in China ETFs
Here’s how to buy shares in a China ETF:
Step 1: Find a China ETF
Search for China ETFs on your broker's website. (No broker? Here's how to open a brokerage account.)
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Step 2: Analyze the ETF
Some things to check before purchasing shares in a China ETF:
Type of China ETF. There are many China ETFs available to U.S. investors, including equity, fixed income and currency assets classes. Some focus on the total China market, while others focus on company size or a particular sector, such as technology, health care and real estate.
Expense ratio. This annual fee is paid out of your investments in the fund, so the lower the expense ratio, the better. The average expense ratio for China ETFs is 0.7%, according to ETF.com.
Important note: The average investor should avoid leveraged China ETFs, which use financial derivatives and borrowed cash to make predictions on future prices. The average investor also shouldn't consider China exchange-traded notes, or ETNs, which are secured debt obligations. Unlike ETFs, these funds don’t actually own the underlying asset and have a higher risk of default. These investments aren’t good for a buy-and-hold strategy favored by many investors saving for the long term.
Step 3: Buy the China ETF
You can purchase ETFs just like you’d buy a company stock — for both, you need an online brokerage account to buy and sell shares.
To see brokerages with a broad ETF selection, check out our full list of the best brokers for ETF investing.
Learn more about sector ETFs:
How to choose the right biotech ETFs for you
Why gold ETFs are having a record year
Marijuana ETFs: On a Roll or Up in Smoke?
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
