The WisdomTree China Dividend Ex-Financials Fund (CHXF) began trading Wednesday (9/19/12), offering investors a diversified way to access Hong Kong listed stocks without exposure to the Financials sector.
The universe of the underlying index is composed of non-financial Chinese dividend-paying stocks that are listed in Hong Kong, have a minimum float-adjusted market capitalization of $1 billion, and paid at least $5 million in cash dividends over the past 12 months. The 10 largest stocks in each sector are weighted by their dividend streams, with individual stocks capped at 10% and sectors at 25%.
CHXF currently has 62 holdings with a country representation of China 71.4% and Hong Kong 28.6%. The largest positions include China Mobile Ltd 8.5%, PetroChina Co Ltd 4.9%, CNOOC Ltd 4.8%, China Shenhua Energy Co Ltd 4.7%, and China Petroleum & Chemical Corp 4.5%.
From a sector viewpoint, the breakdown is Energy 24.5%, Materials 14.6%, Telecommunications 14.5%, Industrials 13.4%, Consumer Staples 13.3%, Technology 7.2%, Utilities 6.3%, Consumer Discretionary 5.4%, Health Care 0.9%, and Financials 0.0%.
The underlying index has a dividend yield of 2.99%, and the new ETF has an expense ratio of 0.63%, putting the estimated yield at about 2.3% for CHXF. Additional information is located in the overview page, press release (pdf), and prospectus (pdf).
Analysis/Opinion: I wrote There Are Now 23 China ETFs more than 17 months ago. Since that day, there have been at least nine more China-focused ETFs and ETNs brought to market, and only one has closed. With about 31 China ETPs for U.S. investors to choose from, do we really need another? The short answer is yes; CHXF is a welcome addition because it brings a fresh perspective on Chinese equities – dividend weighting and elimination of the typically large allocation to Financials.
WisdomTree’s (WETF) CHXF Fact Sheet and Investment Case (pdf) suggests it views iShares FTSE China 25 (FXI) and iShares MSCI China Index (MCHI) as the major competitors for CHXF. In my view, the SPDR S&P China ETF (GXC) is one of the most broadly diversified China ETFs and should have been included in the comparisons. Its inclusion wouldn’t have forced much alteration to the points WisdomTree was trying to make and would have made the comparisons more credible.
The near zero exposure to the Health Care sector is a fact of life for China equities, as FXI and MCHI also have weightings of 1% or less. The Global X suite of China sector ETFs does not include a Health Care fund. GXC shows above-average diversification in this area also, as its underlying index has a 2.2% Health Care weighting.