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ETF News And Commentary

The recent years have not been very good for developed markets like the U.S. and Europe. A heavy debt burden and a high level of unemployment have put pressure on the economic stability of these two regions. The economic woes still linger with few signs of a miraculous recovery.

In this climate of sluggish economic growth, investors have turned their attention to Asia- Pacific economies instead, many of which have better growth rates. Namely, China has attracted a great deal of investor attention in this environment, thanks to its strong levels of growth.

However, the country’s regulatory framework and investor protections leave much to be desired and have pushed some away from the nation. Fortunately, there are other options around the area that can offer exposure to China but with lower risk, namely Hong Kong (If China Slumps, Avoid These Three Country ETFs).

Hong Kong                                                                 

Although Hong Kong was hampered by the global economic slowdown, its integration with China helped it to recover quickly. At present, Hong Kong is one of the most competitive financial and business centers, not only in Asia but in the entire world.

Regulatory efficiency and openness to global commerce strongly support entrepreneurial dynamism, while overall macroeconomic stability minimizes uncertainty and promotes the destination as a major jumping off point for mainland exposure with less risk (Hong Kong ETF Investing).

Investors looking to tap this economy in basket form can invest in the iShares MSCI Hong Kong Index (EWH - ETF report) which is a #1 Zacks ETF Rank (Strong Buy) fund. We expect it to outperform its peers over the next year. Given this, the product could be worth a closer look by investors seeking exposure to this 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. 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 five ranks within each risk bucket. Thus, the Zacks 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 Hong Kong market, we have taken a closer look at the top ranked EWH below:

iShares MSCI Hong Kong Index (EWH - ETF report)

For a broader exposure to the Hong Kong market, investors should consider EWH as it’s the longest standing and most popular ETF tracking the Hong Kong market. The ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Hong Kong market, as measured by the MSCI Hong Kong Index.

The fund offers ample liquidity, trading in robust daily volumes of more than 12 million shares and has assets under management of $2.7 billion. This AUM is invested in a small basket of 43 companies traded in the Hong Kong equity market. The fund appears to be highly concentrated in the top 10 stocks where it has invested 56.4% of its assets.

In terms of sector holdings, the fund is heavily invested in the financial sector with 61.8% exposure to financial companies. However, EWH is inclined towards defensive sectors also, such as utilities (The Comprehensive Guide to Consumer Staples ETFs).

Defensive sector businesses remain more or less impervious to economic cycles and play a defensive role when the macro economy is under pressure. This exposure, at least to some extent, has helped the fund to set off the negative impact from the volatile financial sector.

Among individual holdings, AIA group takes the top spot with 12.3% of investment. EWH has not invested more than 6.61% in any other holding. The fund charges just 52 basis points a year in fees, in line with other more Western-focused Asia Pacific ETFs. Over a period of one year, the fund has delivered a positive return of about 28.5%, making it an extremely strong performer.

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