China ETFs FXI and PGJ - varied YTD performances

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Includes: FXI, PGJ
by: Ezra Marbach

Though these two ETFs offer exposure to China, they do so in different ways. And if you had invested in them at the beginning of 2005, you would be seeing vastly different returns. Here is more on FXI and PGJ:


The ETFs:

  • iShares FTSE/Xinhua China
    25 Index Fund (ticker: FXI).
  • Golden Dragon Halter USX China Portfolio
    Index Fund (ticker: PGJ).

What they have in common:

  • iShares consists of only 25 stocks
    and Golden Dragon 43.
  • Both are highly concentrated in
    telecom, energy and information technology companies.
  • Both contain a number of the same companies including
    China Mobile (ticker: CHL) and PetroChina (ticker: PTR).

Differences:

  • PGJ is comprised of US exchange-listed ADRs
    of companies that derive a majority of their revenue from mainland
    China. These companies are required to meet US accounting standards.
  • FXI is skewed toward Hong Kong-listed companies, which don't have
    to follow the same SEC regulations.

FXI's top 10 holdings and % of assets (as of March 21, 2005):

  • China Mobile - 10.16%
  • PetroChina - 10.04%
  • BOC Hong Kong - 7.55%
  • CNOOC - 7.24%
  • China Telecom - 5.54%
  • Cosco Pacific - 4.36%
  • Sinopec - 4.19%
  • Huaneng Power - 4.10%
  • Citic Pacific - 4.08%
  • China Merchants - 3.94%

Other notables: China Unicom (3.71%) and China Netcom (3.31%).

PGJ's top 10 holdings, stock ticker, and % of assets (as of March 22, 2005):

  • PetroChina - PTR - 9.44%
  • China Mobile - CHL - 7.80%
  • CNOOC - CEO - 6.91%
  • Sinopec - SNP - 4.85%
  • Aluminum Corporation of China - ACH - 4.83%
  • China Unicom - CHU - 4.76%
  • China Life Insurance - LFC - 4.75%
  • Huaneng Power - HNP - 4.65%
  • China Telecom - CHA - 4.50%
  • Semiconductor Manufacturing - SMI - 4.46%

Quick thought: Both FXI and PGJ give investors simple ways to invest in
China and diversify assets without having to spend time
researching individual companies. While PGJ has a lower
expense ratio (0.6%, vs. FXI's 0.74%.), FXI provides
opportunities to invest in stocks listed on the Chinese and Hong Kong
markets. Either way, keep in mind that both FXI and PGJ's high
concentrations of capital in few industries where the government
continues to wield a strong hand is an issue investors should
definitely be wary of.

FXI and PGJ market performance since the start of 2005 (FXI in green, PGJ in orange):

Fxi_pgj_ytd