BOSTON, Dec 9 (Reuters) – An exchange-traded fund that holds shares in 38 U.S.-listed Chinese companies was launched on Thursday, the first China ETF to solely invest in Chinese companies that trade on U.S. stock exchanges. China exposure for U.S.
PowerShares Capital Management, of Wheaton, Illinois, said its PowerShares China ETF is based on the Halter USX China Index, which tracks Chinese public companies trading on U.S. stock exchanges.
“(The fund gives) investors the value of the region and the controls on the U.S. market because companies are forced to meet a much higher regulatory bar than if they were just listed in China,” Bruce Bond, president of PowerShares Capital Management, said in an interview.
“These companies are very, very progressive and understand the capitalist structure,” he added.
Exchange-traded funds, which are listed and trade like stocks, track indexes of shares, bonds and other assets.
One-third of the portfolio will invest in energy companies, one-quarter in the telecommunications industry and another 16 percent in materials. The rest of the fund will span industrial and financial stocks, as well as utility firms.
But Morningstar analyst Dan Culloton worried that too much was focused on a handful of companies, such as PetroChina Co. Ltd. , China National Offshore Oil Corp. and China Mobile Ltd . Those three companies together account for one-third of the fund.
“The fortune of those three companies will determine how the portfolio will do,” Culloton said. “It’s still a single country fund.”
PowerShares is one of only two China ETFs currently available and the only to invest solely in Chinese companies that are listed on U.S. stock exchanges.
Culloton also questioned the maturity of China’s legal and financial systems, and he expressed concern about the volatility of investing in China-linked products.
“It’s still an emerging economy, which still has question marks about the rule of law and the strength of the financial system,” he said. “There are great expectations for China, but it’s important not to get carried away.”
In recent years China has attracted enormous amounts of investment and has grown as a major manufacturing hub.
“China could be one of the greatest industrial revolutions of our time and maybe world history,” Bond said. “It could carry the country to very good things.” But he added that like other international investments it remained volatile.
Bond said he expected the fund to grow assets to between $200 million and $500 million in the first year of the fund.
Source: China exposure for U.S.
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