Is Xtrackers MSCI All China Equity ETF A Buy?

Xtrackers MSCI All China Equity ETF Stock Forecast: The past 40 years have brought unprecedented growth and prosperity to China. Many of those years saw double-digit GDP expansion, and the country now boasts the second-largest economy in the world.

This has had a stunning impact on Chinese citizens, who have gained access to a wide range of goods and services previously unavailable. Chinese Millennials in particular have enjoyed substantially improved standards of living, and they are driving consumption of cutting-edge technologies that include social media, streaming video, and gaming.

A number of Chinese-based companies are growing rapidly in an effort to meet the demands of Chinese consumers. Their impressive profits – and predicted future successes – have prompted investment from all over the world. Though there are signs that Chinese economic growth is slowing, many investors are still looking for opportunities to enter this market.

Instead of buying stock in individual companies, some investors have chosen to purchase shares of Chinese-focused funds. Xtrackers MSCI All China Equity ETF has attracted interest based on its strong analyst ratings, focus on expanding industries, and diverse mix of financially sound companies. Here’s what you need to know before you buy:

Xtrackers MSCI All China Equity ETF Holdings

As an exchange traded fund (ETF), Xtrackers MSCI All China Equity ETF operates in a similar manner to standard mutual funds. Essentially, the fund manager designs a portfolio, and investors purchase shares of the whole. This reduces risk by offering automatic diversification without the expense and complications of purchasing stock from multiple companies.

ETFs differ from mutual funds in that they are typically created to track the performance of a specific underlying index. In this case, the underlying index is the MSCI China All Shares Index.

This index is focused on large and mid-cap Chinese companies that are listed in China, Hong Kong, Singapore, and the United States.

It includes A-shares, H-shares, B-shares, Red chips and P chips, as well as China securities (including ADRs) listed on the NYSE Euronext, NASDAQ, New York AMEX, and Singapore exchanges.

There are six factors considered when this index chooses securities:

• Value – stocks on the comparatively inexpensive side
• Size – smaller companies
• Momentum – companies poised for growth
• Quality – companies with strong balance sheets
• Yield – history of cash flow paid out
• Volatility – preference given to less volatile, lower risk stocks

Essentially, Xtrackers MSCI All China Equity ETF uses these same criteria as it works to match the returns of the MSCI China All Shares Index.

There is an important distinction between ETFs and mutual funds that is particularly appealing to active investors: while mutual funds only trade once a day when the market closes, ETFs trade throughout the day in the same way other stocks do. This gives investors the opportunity to react quickly to market news.

Best of all, ETFs tend to have lower fees than their actively-managed mutual fund counterparts, because they require less attention from fund managers. Of course, for investors, the question is whether Xtrackers MSCI All China Equity ETF, in particular, is a buy.

Xtrackers MSCI All China Equity ETF Overview

The first question to ask with any fund is how much goes to expenses. Even the most profitable funds can result in losses for investors when expense ratios are too high. Xtrackers MSCI All China Equity ETF has a gross expense ratio of 0.73 percent and a net expense ratio of 0.50 percent, which is slightly higher than average but not unreasonable.

This ETF was launched in April of 2014, and it has 236 holdings as of September 30, 2019. Net assets are over $36.6 million.

From a performance perspective, the Xtrackers MSCI All China Equity ETF has outperformed the MSCI China All Shares Index over the long term, though it has struggled in the past year.

• Since inception, the ETF gained 10.11 percent to the underlying index’s 8.81 percent.
• In the past three years, the ETF gained 5.64 percent to the underlying index’s 5.08 percent.
• In the past year, the ETF had a loss of (0.49) percent, while the underlying index gained 0.50 percent.
• In the past three months, the ETF had a loss of (4.38) percent, and the underlying index lost (4.00) percent.

The ETF’s top five investment sectors are as follows:

• Information technology – 25.73 percent
• Financials – 24.65 percent
• Consumer discretionary – 9.58 percent
• Industrials – 8.01 percent
• Consumer staples – 7.35 percent

It’s top ten holdings include some of China’s strongest organizations, as well as two of Xtrackers’ other China-focused ETFs:

• Xtrackers MSCI China A Inclusion Equity ETF – 34.75 percent
• Tencent Holdings – 8.63 percent
• Alibaba Group Holdings – 8.55 percent
• Xtrackers Harvest Csi 500 China A Shares Small Cap ETF – 5.49 percent
• China Construction Bank Corp – 2.58 percent
• Ping Insurance Group – 2.31 percent
• China Mobile – 1.82 percent
• Industrial and Commercial Bank – 1.57 percent
• Bank of China – 1.13 percent
• Baidu – 1.03 percent

All of these figures are accurate as of Xtrackers’ September 30, 2019, report.

This information offers insight into what investors are getting with each share they purchase in this ETF – but what’s the bottom line? Is Xtrackers MSCI All China Equity ETF a buy?

Is Xtrackers MSCI All China Equity ETF A Buy? 

This fund has earned a four-star rating from the highly-regarding Morningstar firm, and with good reason. Fees are low, returns are historically strong, and fund managers have been thoughtful in their approach when it comes to mirroring the underlying index fund on which the ETF is based.

Investors who want diversified exposure to the Chinese market – and don’t want the challenge of evaluating individual companies – can buy Xtrackers MSCI All China Equity ETF with confidence.

However, the fact is that China’s economic growth is slowing down, and that is bound to have a dampening effect on funds that mirror the larger marketplace.

Investors with an eye on strong returns, both short-term and long-term, may be more successful with buying individual stocks in Chinese companies poised for growth in the changing Chinese economy.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.