Can you please provide the tickers for the two ETFs? Are they LON:IIND and LON:IASH?
I did some analysis a while back and found LON:IIND as one of the best ETFs for coverage to broad India market, trading abroad. I haven't done any analysis on LON:IASH yet.
Yes exactly these ones! IE00BZCQB185 (India) and IE00BQT3WG13 (China). Good to know about LON:IIND.
I found IASH to be the best one to replicate the exposure to China A large caps shares, weirdly there weren't many ETFs at the time but admittedly haven't checked in the last two years. Curious to know if you do more discovery on this subject later on.
I took a quick look at IASH and I have to admit that I am a bit surprised that tech is almost not represented in its top-10 holdings (https://markets.ft.com/data/etfs/tearsheet/holdings?s=IASH:LSE:GBX). For instance, Alibaba, Tencent, JD.com are not represented at all, despite being USD 200B, 400B and 50B respectively. Its top sectoral weight is "Beverages", which seems totally odd, for a country that's humming along all sectors. If you look at the MSCI index itself (https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021), you will see a healthy representation of the companies I just quote above, with all 3 featuring within top-4.
Are you sure this is tracking the MSCI China Index? or perhaps I am looking at something wrong?
Yes, it's true. This IASH ETF is a lot more focused on industrials. I have found two other ETFs which have more exposure to tech:
- LON: FXC from iShares: top 50 large caps, lower number of holdings overall but does have tech
- LON: HMCH from HSBC: similar to the IASH but with tech included.
With this information, I am a bit conflicted.
Looking at past results - the tech component in China over the last 5 years has taken a downfall (in shareholder value at least) and the IASH focused more on industrials/financials has weathered the crisis with better results (-17% of IASH vs -30% of FXC. the HMCH is also at -17% so it's perhaps better balanced?)
Looking ahead - progressively increasing a position on China should at least in principle have a tech exposure.
Wondering if it's best to switch to the HMCH ETF (which also has the lowest TER of all at 0.30%).
The question isn't what they are holding, but what is the ETF's core objective - if it is to replicate an index and they aren't doing it, then that's worrisome. If they are an actively managed ETF, then you must be comfortable with what their approach is.
Personally I have largely given up on ETFs (as I mentioned in one my early posts) and I want to use them only for very specific purposes. I am sure that other investors find good value in them, and for good reasons, however.
Great article. Although I wonder on China if it is investable at all for non Chinese nationals.
I thought long terms returns have been very very poor even when China has been growing fast. Only returning about 1.9% per annum over last 30 years even when dividends are included:
First we have the appropriation risk with Government completely capable of taking over economic resources of any Company.
Note that this risk also exists in UK with so called Windfall taxes resulting in Harbour energy's profits being completely appropriated by government this year hence why UK stock market is tanking and everyone is thinking of moving to US.
Secondly even if this was not to happen it is not clear what return route would be. Would these companies ever pay enough and reliable dividend to justify the investment, probably not.
Government wont like it and neither would the entrepreneurs. They would probably find a way to stop it.
Investment into China has to be seen from the prism of above two considerations more so than perceived value or cheapness.
(a) I think your concerns on China being investable vs not are totally rational and a choice you have to make. I have made peace with the risk reward there - I believe that Chinese officials know that they have more to gain by having a vibrant capitalist structure, with foreign capital playing its role. However, the government will choose other agenda above this from time to time, and that should largely be okay for investors. Companies will adapt to this, often choosing to divest or split up, to support government's agenda, and splits when done well often add a lot of value to shareholders than as a single entity.
(For comparison there was a time when US' regulation and anti-competitive action was much higher than today, and in that regime, Google, Amazon etc would have faced much more headwinds. Yet the investment case in US was strong even in those days and is strong now. I have seen similar swings elsewhere too.)
That said, if this is a big enough concern for you, you should either skip investing in China altogether, or keep your investments to enough allocation that you can lose it and yet not lose sleep.
(b) Returns are a more interesting debate. I was drawn to look into China based on the returns I enjoyed by investing in a mutual fund called "First State China Growth" which my family has held for many years now and it was definitely more than 2% CAGR. A lot of the difference in performance depends on when you measure it. However, if you see the long term trend (https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021), MSCI China hasn't been too far away from the emerging markets index.
Furthermore, the author of the article explains that China hasn't become uninvestable, but a matter of identifying the right industries and valuation. This is precisely my argument for investing too - identify broadly performing sectors with good valuations and hopefully see good returns.
(C) Return route is not at all a concern for me - Chinese companies have roughly the same track record of dividends as other markets - some choose to do it and some don't. If that mix works elsewhere, so will it in China.
Very good points Shree, fully aligned on the rationale for both China and India (although long term I am more bullish for the latter).
I am currently invested in these two ETFs (both 8% allocation each) -- curious to see if you recommend different ones?
iShares MSCI India UCITS ETF USD Acc (GBP)
iShares MSCI China A UCITS ETF USD Acc (GBP)
Can you please provide the tickers for the two ETFs? Are they LON:IIND and LON:IASH?
I did some analysis a while back and found LON:IIND as one of the best ETFs for coverage to broad India market, trading abroad. I haven't done any analysis on LON:IASH yet.
Yes exactly these ones! IE00BZCQB185 (India) and IE00BQT3WG13 (China). Good to know about LON:IIND.
I found IASH to be the best one to replicate the exposure to China A large caps shares, weirdly there weren't many ETFs at the time but admittedly haven't checked in the last two years. Curious to know if you do more discovery on this subject later on.
Thanks!
I took a quick look at IASH and I have to admit that I am a bit surprised that tech is almost not represented in its top-10 holdings (https://markets.ft.com/data/etfs/tearsheet/holdings?s=IASH:LSE:GBX). For instance, Alibaba, Tencent, JD.com are not represented at all, despite being USD 200B, 400B and 50B respectively. Its top sectoral weight is "Beverages", which seems totally odd, for a country that's humming along all sectors. If you look at the MSCI index itself (https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021), you will see a healthy representation of the companies I just quote above, with all 3 featuring within top-4.
Are you sure this is tracking the MSCI China Index? or perhaps I am looking at something wrong?
Compare that to https://markets.ft.com/data/etfs/tearsheet/holdings?s=IIND:LSE:GBP - the top names in this ETF totally makes sense to me.
Yes, it's true. This IASH ETF is a lot more focused on industrials. I have found two other ETFs which have more exposure to tech:
- LON: FXC from iShares: top 50 large caps, lower number of holdings overall but does have tech
- LON: HMCH from HSBC: similar to the IASH but with tech included.
With this information, I am a bit conflicted.
Looking at past results - the tech component in China over the last 5 years has taken a downfall (in shareholder value at least) and the IASH focused more on industrials/financials has weathered the crisis with better results (-17% of IASH vs -30% of FXC. the HMCH is also at -17% so it's perhaps better balanced?)
Looking ahead - progressively increasing a position on China should at least in principle have a tech exposure.
Wondering if it's best to switch to the HMCH ETF (which also has the lowest TER of all at 0.30%).
The question isn't what they are holding, but what is the ETF's core objective - if it is to replicate an index and they aren't doing it, then that's worrisome. If they are an actively managed ETF, then you must be comfortable with what their approach is.
Personally I have largely given up on ETFs (as I mentioned in one my early posts) and I want to use them only for very specific purposes. I am sure that other investors find good value in them, and for good reasons, however.
Great article. Although I wonder on China if it is investable at all for non Chinese nationals.
I thought long terms returns have been very very poor even when China has been growing fast. Only returning about 1.9% per annum over last 30 years even when dividends are included:
https://www.schroders.com/en/insights/economics/two-charts-that-show-why-you-should-ignore-chinas-index/
First we have the appropriation risk with Government completely capable of taking over economic resources of any Company.
Note that this risk also exists in UK with so called Windfall taxes resulting in Harbour energy's profits being completely appropriated by government this year hence why UK stock market is tanking and everyone is thinking of moving to US.
Secondly even if this was not to happen it is not clear what return route would be. Would these companies ever pay enough and reliable dividend to justify the investment, probably not.
Government wont like it and neither would the entrepreneurs. They would probably find a way to stop it.
Investment into China has to be seen from the prism of above two considerations more so than perceived value or cheapness.
(a) I think your concerns on China being investable vs not are totally rational and a choice you have to make. I have made peace with the risk reward there - I believe that Chinese officials know that they have more to gain by having a vibrant capitalist structure, with foreign capital playing its role. However, the government will choose other agenda above this from time to time, and that should largely be okay for investors. Companies will adapt to this, often choosing to divest or split up, to support government's agenda, and splits when done well often add a lot of value to shareholders than as a single entity.
(For comparison there was a time when US' regulation and anti-competitive action was much higher than today, and in that regime, Google, Amazon etc would have faced much more headwinds. Yet the investment case in US was strong even in those days and is strong now. I have seen similar swings elsewhere too.)
That said, if this is a big enough concern for you, you should either skip investing in China altogether, or keep your investments to enough allocation that you can lose it and yet not lose sleep.
(b) Returns are a more interesting debate. I was drawn to look into China based on the returns I enjoyed by investing in a mutual fund called "First State China Growth" which my family has held for many years now and it was definitely more than 2% CAGR. A lot of the difference in performance depends on when you measure it. However, if you see the long term trend (https://www.msci.com/documents/10199/aa99c3a4-d48b-44ac-8caa-49522caa9021), MSCI China hasn't been too far away from the emerging markets index.
Furthermore, the author of the article explains that China hasn't become uninvestable, but a matter of identifying the right industries and valuation. This is precisely my argument for investing too - identify broadly performing sectors with good valuations and hopefully see good returns.
(C) Return route is not at all a concern for me - Chinese companies have roughly the same track record of dividends as other markets - some choose to do it and some don't. If that mix works elsewhere, so will it in China.