Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the Chinese economy to keep thriving, the SPDR S&P China (NYSE: GXC) ETF 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 several dozen of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The China ETF's expense ratio -- its annual fee -- is 0.59%. That's low compared to most international mutual funds, but fairly high in the ETF universe.
This ETF has performed reasonably, but it's also very young, with just three full years on the books. It underperformed a broad international lindex in 2008 and blew past it in 2009, roughly coming up even in 2010. 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.
With a low turnover rate of 25%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.
What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. SINA (Nasdaq: SINA) more than tripled in value over the past year, while search engine specialist Baidu (Nasdaq: BIDU) more than doubled. SINA is a microblogging enterprise that's growing briskly, but it's not without competitors, such as the Facebook-like Renren (Nasdaq: RENN) -- which many find overvalued. These companies can be quite volatile, with SINA plunging 13% in one day recently, for no particular reason, which makes the diversification offered by an ETF rather attractive.
Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. China Life Insurance (NYSE: LFC) lost 20%, while China Mobile (NYSE: CHL) lost 3%. China Life stands to gain when interest rates rise in China, as it makes much of its money from interest income. China Mobile boasts a staggering (and growing) 600 million-plus customer base, but some are worried about slipping profit margins.
The big picture
China's growth won't stop anytime soon. A well-chosen ETF can grant you instant diversification across the industry -- and make investing in and profiting from the sector that much easier.
ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, " 3 ETFs Set to Soar During the Recovery ."
