An All-Cap China ETF from Claymore: Something Different?

By Murray Coleman

Claymore Securities, which has already sponsored two funds based on indexes developed by AlphaShares LLC, is planning to launch a third.

Like the others, the new exchange-traded fund would focus on China. This time, however, Claymore wants to take more of an all-caps approach, according to a Securities and Exchange Commission filing.

The Claymore/AlphaShares China All-Cap ETF would be listed on the NYSE Arca and invest in public companies in mainland China. It would implement a modified free-float market-cap size weighting methodology and require an initial minimum market-cap size of $500 million.

The other Claymore-AlphaShares ETFs are: the China Small Cap Index ETF (HAO) and the China Real Estate ETF (TAO). The small-cap stock fund launched late last year. (See related article here.) A year earlier, TAO came to market. (See related article here.)

Both are having banner years. TAO has especially been strong, taking advantage of a real estate boom across Asia. (See related article on Chinese REITs versus others here.)

A new all-cap China ETF would wade into an already highly competitive field. At least five ETFs already offer direct exposure to China's broader stock market.

Besides the pair of Claymore/AlphaShares funds, PowerShares has the Golden Dragon Halter USX China (PGJ). It had slightly more than 35% of its holdings in mid-caps and another 17% or so in small-caps entering the second quarter. Its index is rebalanced quarterly and the fund charges an expense ratio of 0.60%.

The other major rival would seem to come from the SPDR S&P China ETF (GXC). But it's mainly skewed to large-cap names. It charges 0.59% in annual expenses.

Of course, the 800-pound gorilla in the group is the iShares FTSE/Xinhua China (FXI), which has nearly $11.4 billion in net assets. It's even more tilted to mega-caps than GXC.

Outperformance Gap

But compare the wide gap in outperformance this year between large-cap-oriented portfolios and small-cap ones. Such relative gains by smaller companies isn't just limited to China—the same trends are spreading through most other key emerging markets as well. (See related story here.)

That could prove an interesting opening for those interested in a more blended approach to market-cap sizes. (For a more extensive look at the choices in gaining exposure to China available to ETF investors, both from a broad emerging market view as well as comparing specific BRIC and China-only funds, see article here.)

Interestingly, the proposed new all-caps China ETF will only include shares available to foreign investors. That eliminates "A" and "B" shares sold in local markets. However, "H" shares and so-called Red Chips will be part of the ETF's portfolio. So would "N" shares, which are sold in the U.S.

The underlying AlphaShares index the ETF would track rebalances annually. No fees and expenses are listed in the filing.

Another point raised in the filing is that the fund can make a change in investment strategies without requiring a vote of shareholders. But it must provide investors with at least three months' advance notice.

You can read the filing for the proposed Claymore/AlphaShares fund here.

Original post

Comments

[Joseph L. S...:]

China's been on a tear, all right -- mostly because we like what we hear about the only growth engine left in the world right now.

However, today's Financial Times notes that local Chinese bureaucrats' growth numbers are wildly different than those of the Chinese National Statistics Office. Could it be that in a statist, centralized government, "pleasing Beijing" is more important than reporting accurate numbers?

We can hope not -- but then hope is not a strategy. Perhaps yet another new China ETF -- 15 aren't enough? -- is as good a contrary indicator as any that we may be just a little too excited about the growth in China, and a little too willing to believe what we hear.

Aug 05 12:44 PM

[dax:]

feed://newsrss.bbc.co....

Aug 06 05:50 PM

[Mahant:]

Where does CAF stand amongst all these? your analysis will help.

Aug 06 11:54 PM