As of today there are two ETFs with pure focus on
Below is a comparison of these 2 ETFs and my personal preference based on the latest development of Chinese government policy.
CAF is US listed denominated in US$, iShares FTSE/Xinhua A50 China Tracker is HK listed denominated in HK$ (2823.HK) and traded as pink sheet in US (IFXAF.PK).
Index Fund/ Actively Managed Fund
IFXAF is a passive index tracking fund, the Fund's objective is to track the performance of the FTSE/Xinhua China A50 Index. The Fund invests in Chinese A-Shares Access Product (CAAPs) issued by a connected person of QFII as underlying investments.
CAF is actively managed and invest directly in Chinese A-share with its allocated QFII (Qualified Foreign Institutional Investor) quota, its fund manager is supposed to exercise his strategy to pick stocks to beat the index.
Fund NAV (as of
IFXAF: HK$18.1B (or US$2.3B)
Top 10 Holdings (as of latest report)
Out of its top-10, 19% of the fund is invested in bank/finance sector.
Out of its top-10, 28.2% of the fund is invested in bank/finance sector.
We can see that CAF overweighted industrial sector while the A50 index is more banking and finance biased.
Discount/Premium (as of last closing)
IFXAF: 7.16% discount to NAV
CAF: 12.44% discount to NAV
Most recent discount/premium can be checked from the following sites:
After reading all the factual information, here is my further analysis based on the current Chinese political and economical situation.
I am very bullish towards China’s general economic and stock market growth, at least towards the end of 2008 when the first Olympics is being hosted by China. ‘Face’ is one of the main reasons why
What is the implication of the ‘return home’
At the same time those original A-50 smaller constituents less profitable companies will be kicked out from the index. This process will go on until there are no more companies need to be reshuffled from the index, this will take at least a few years and this is exactly a period during which the A-50 will experience the highest growth rate.
So the next question is whether CAF can beat the A-50 index?
Previosly I don’t have preference among the two, until CAF disclosed its full portfolio recently. I reviewed the latest CAF annual report and its full portfolio. I am not too pleased with what I see.
CAF has invested around 5% of its money into 11 funds (including the iShare A-50 fund!). I really cannot understand the reason for doing so when there are a whole lot of available alternative companies in the Chinese market. So practically 5% of CAF is a Fund of Funds. This raised a question whether the CAF manager has really tried his best effort to increase the return, may be a sign of agency problem. Though 5% of the NAV is not a significant amount, I always believe minor issue can help us uncover bigger truth.CAF investment in other Funds
There are a lot of research papers which show most active funds cannot beat the index, unless there are strong evidences to convince me an actively managed fund is better than the comparable index fund, I would rather play safe, especially in this case the A-50 index is so rosy. I am in favor of iShares FTSE/Xinhua A50 China Tracker (IFXAF.PK or 2823.HK).
Disclosure of interest: I have a LONG position in 2823.HK