Global X Halfway Through China Sector Rollout
Global X Management Company is now halfway through their rollout of six China sector ETFs with today’s (12/09/2009) introduction of Global X China Technology ETF (CHIB). The first two (consumer and industrial) were launched last week, and the remaining three (financials, energy, and materials) are expected before the end of the year.
The new ETF has an expense ratio of 0.65%, and the underlying index uses a capped weighting methodology whereby the percentage weighting of each constituent is capped at 4.75%. The excess weight is allocated proportionally to the constituents whose percentage weight is not capped. This methodology should help provide a true sector representation without the extreme company overweighting present in the popular ETFs like the US Select Sector SPDRs. Only stocks which are tradable for foreign investors are eligible for inclusion. Index members must either be domiciled in China or have their main business operations in that country.
Global X China Technology ETF (CHIB) (CHIB summary) will track the S-BOX China Technology Total Return Index developed by Structured Solutions Ag for this ETF. The index fact sheet shows 26 constituents with 15 of them subject to the maximum 4.75% cap weighting. Those 15 are: China Mobile, China Telecom, China Unicom, Tencent Holdings, Baidu.com, Alibaba.com, Netease.com, Foxconn International Holdings, Lenovo Group, Ctrip.com, Shanda Interactive Entertainment, Sohu.com, Perfect World, SINA, and Giant Interactive Group. Top industry representation according to the CHIB fact sheet includes internet 50.0%, telecommunications 30.8%, and hardware & software 19.2%.
Over the next days and weeks, Global X Management Company plans to launch three more China sector ETFs. These are included in the prospectus dated 11/24/09 and will cover the energy, financial, and materials sectors and will also be based on S-BOX indices representing the respective sectors.
The launch of CHIB comes on the heels of the Claymore China Technology ETF (CQQQ) which began trading yesterday (12/08/2009). Here are three reasons why I like CHIB over CQQQ:
- CHIB is part of a family of China sector ETFs allowing investors to fine-tune their China sector exposure. While Claymore offers other China related ETFs, CQQQ is more of a stand-alone product.
- I believe the capped weighting approach used in the S-BOX indexes provides for better sector exposure than the more traditional market-cap weighting employed by the AlphaShares indexes.
- CHIB also has slightly lower expenses of 0.65% versus 0.70% for CQQQ.
Two days ago there were no China technology ETFs, and today there are two of them. It is questionable whether the current ETF marketplace can support two such products.
Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.