Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect companies in China to thrive as its massive population grows even larger, and you'd like to focus on companies that serve that population directly, the Global X China Consumer ETF (NYSE: CHIQ ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The China ETF's expense ratio -- its annual fee -- is 0.65%, which is much lower than most competing mutual funds, but a bit higher than many ETFs. One of the attractive things about the fund is its very low turnover rate of 4%, which can help keep its costs down, since the fund isn't frantically and frequently rejiggering its holdings as many do.
I would like to tell you that this ETF has performed very well, but it's actually too soon to tell. It beat the benchmark MSCI EAFE Index of developed international markets in 2010 but is lagging it so far this year; however, the fund is very young. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Its youth also contributes to the fund being rather small, with less than $150 million in assets. It's often smart to give such funds a chance to grow bigger and therefore more stable before investing. Still, learn more about the fund and consider adding it to your watch list. Or invest just a little to begin with.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. New Oriental Education & Technology (NYSE: EDU ) , for example, gained about 32%, recently posting double-digit gains in revenue and student enrollment, as well as a triple-digit earnings gain. The company has been expanding aggressively and shedding less-profitable operations.
Other companies didn't add as much to the ETF's returns last year, but could have an effect in years to come. Home Inns & Hotels Management (Nasdaq: HMIN ) shed about 40% of its value, while fellow China travel specialist Ctrip.com (Nasdaq: CTRP ) dropped about 27%. China's growth rate may be slowing, but those who can afford to travel aren't likely to stop doing so, so these companies stand to profit if they can compete successfully with others.
Chinese advertising giant Focus Media (Nasdaq: FMCN ) is up just 1% over the past year, as a slowing manufacturing sector led to lower ad spending. The company is taking advantage of what it sees as a low price to buy back shares. Finally, Chinese video streaming website Youku.com (NYSE: YOKU ) hasn't even been trading for a year yet, so it doesn't have much of a track record. While some like its huge revenue gains, others note that its absolute revenue level is still small, and the company isn't yet profitable.