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ETF News And Commentary

Although the Chinese economy was weak earlier in the year, there is some hope that the country can end 2013 on a solid note. This could be especially true in the consumer market, as this corner of the Chinese economy seems very well-positioned for further growth in the months ahead.

Investors should note that consumer demand in China is shooting up as rural inhabitants are shifting to urban areas of China. In fact, by 2020, it is expected that approximately 850 million citizens will be residing in urban area of China.

It emphasizes the fact that with improved lifestyle there will be more demand for consumer goods. The growth will eventually result in products readily available to consumers at much cheaper prices.

It should be noted that, at present, China is growing more on domestic consumption and less on exports, so this could be the sector to watch in the years ahead (read The Right and Wrong Ways to Invest in China ETFs).

In fact, China has emerged as the biggest developing market for consumer products. Moreover, China has turned out to be the world’s largest market for luxury items and cars. This has consequently resulted in foreign investment in the consumer space thereby providing further boost to the sector.
Additionally, China has emerged as a strong market for Apple products. Higher sales of iPhones and laptops also signifies goods prospects for gadget companies.

Indeed, the smart phone market of China is gearing up at a fast speed. Sales have doubled to the extent that one-third of all smart phones are being sold in China. This sales figure is much higher than the United States, India, Japan and the United Kingdom sales put together.

Given this bullish trend, a look at some of the top ranked ETFs in the space could be a good way to target the best of the region with lower levels of risk.

Investors looking to tap this region in basket form can invest in the Global X China Consumer ETF (CHIQ) which is a Zacks ETF Rank #2 (Buy) fund. We expect it to outperform its peers over the next year. Thanks to this, the product could be worth a closer look by investors seeking exposure to this corner of the China economy.

About the Zacks ETF Rank

The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class (read: Zacks ETF Rank Guide). Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium or High.

The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.

For investors seeking to apply this methodology to their portfolio in the China consumer sector, we have taken a closer look at the top ranked CHIQ. This ETF has a Zacks ETF Rank of 2 or ‘Buy’ (see the full list of top ranked ETFs) and is detailed below.

Global X China Consumer ETF (CHIQ - ETF report)

Launched in November of 2009, Global X China Consumer ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive China Consumer Index.

The Solactive China Consumer Index is designed to reflect the performance of the consumer sector in China. It is comprised of selected companies which have their main business operations in the consumer sector.

It is a passively managed exchange traded fund (ETF) designed to provide aggressive exposure in the consumer sector of the China economy.

Since its inception, the ETF has amassed $169.9 million in assets, making it a reasonably popular choice for investors. However, CHIQ is not a cost-effective choice for investors as it charges 65 basis points per annum in fees and expenses compared to a category average of 0.54% (see Focus on These China ETFs for Outperformance).

The fund currently holds a fairly small portfolio of 39 securities in total, and allocates 51.04% of the total assets to its top 10 holdings.

Great Wall Motor Co. (6.65%), China Menguin Dairy Co. (6.50%) and Melco PBL Ent ADR (5.82%) are the top three holdings.

CHIQ struggled earlier in the year, but has come back strong lately, pushing the fund to a gain in YTD terms. The fund recorded a gain of 1.6% in the year-to date period while it has delivered a return of 14% over a period of one year.

We believe that the momentum can continue, and that CHIQ can surge to the top in the consumer ETF space. This could be especially true if China continues to rebound, making this ETF an intriguing way to play the resurgent nation and one of its most dynamic sectors.

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