Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some Chinese technology stocks to your portfolio but don't have the time or expertise to handpick a few, the Guggenheim China Technology ETF (NYSEMKT: CQQQ ) 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 Chinese technology stocks ETF's expense ratio -- its annual fee -- is a relatively low 0.47%.
This ETF has performed reasonably, but it's also young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. 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.
Why Chinese technology stocks?
China is of great interest to many investors because of its massive and growing population and the fact that the economy is developing, with a swelling middle class able to buy more. Chinese technology stocks in particular are of interest because they often have especially strong growth potential.
More than a handful of Chinese technology stocks had strong performances over the past year. Youku Tudou (NYSE: YOKU ) , with its streaming-video service that's often compared to YouTube, surged 57%. It is growing briskly, with advertisers spending more, but its shares dropped some in August when management tempered expectations a bit. Citigroup analysts rate the stock a buy, expecting a "meaningful" contribution to revenue from new performance-based mobile ads. Singapore sovereign investor Temasek Holdings, though, is selling its Youku stake, worth around $185 million.
SINA (NASDAQ: SINA ) jumped 44%, with bulls seeing great potential in its microblogging platform, Weibo, which has been compared to Twitter. It's not without challenges, though, such as censorship by the Chinese government and competition from Tencent, with its WeChat and QQ messaging apps, and others.
Search-engine giant Baidu (NASDAQ: BIDU ) gained 38%. It has suffered as China's economic growth has slowed and has also faced tough competition. Bulls like its profitability and growth prospects, such as in video, smart TVs, and mobile apps. Also promising is its "Light App" strategy, which could profit from sales of less popular apps, capturing the "long tail" of the market. Baidu's latest quarter featured strong earnings and a rosy outlook. Its surging price has frustrated many short-sellers, with plenty of investors still finding it attractively priced.
Other companies didn't do quite so well over the last year but could see their fortunes change in years to come. Chinese social-networking specialist Renren (NYSE: RENN ) , for example, which has been likened to Facebook, advanced 7%. Baidu has bought a majority stake in Renren's daily deals business, Nuomi, but some think Baidu should just buy the whole company. While some like the fact that Renren's business is growing, it has posted disappointing results many times. Renren gets much of its revenue from social gaming, and some would like to see it grow other income streams, such as online advertising. Most recently, its online advertising business posted growth of only 2%.
The big picture
Demand for Chinese technology stocks isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in it, and profiting from it, that much easier.