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Chinavestor ETF Spotlight: iShares FTSE/Xinhua China 25 Index Fund

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FXI_allocation-thumb December 20, 2010 (Chinavestor) Just a few years ago, there was a paltry amount of China-specific ETFs available to U.S. investors. The number started to grow gradually from several to close to double digits, but the total of China-specific ETFs currently available on U.S. exchanges is now in the neighborhood of 20 when counting leveraged and inverse funds along with the plain vanilla long funds. Yet one fund wears the crown among China-specific ETFs when it comes to assets under management and daily trading volume: The iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI).

Now just over six years old, the iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) has nearly $8 billion dollars in assets under management. No other ETF tracking China even comes close. When the China growth story first became part of the American investing, the iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) delivered access to China's high-flying large-caps, including stocks that have surged to become among the largest in the world in their respective industries.

The iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) is currently home to 26 stocks, all large-caps, including familiar names such as China Life Insurance (NYSE:LFC), the world's largest insurance company by market value, China Unicom (NYSE:CHU), Cnooc (NYSE:CEO), China's largest offshore oil driller, and PetroChina (NYSE:PTR), China's largest oil company.

One knock on the fund is sector diversification, or in this case, lack thereof. The iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) is heavily weighted toward financials. How prominent is this sector in the ETF? Try almost 48% of the fund's weight and that can mean problems when Chinese banks are under pressure.

FXI_allocation

Telecom names account for roughly 18% of the ETF's weight, while oil names check in at about 16%. Basic materials at 10% is the only other sector with a double-digit weight in the iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) ETF. Industrials are the only are group receiving a noteworthy weight  at nearly 6.3%.

Another knock on the iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) is its expense ratio of 0.72%, which is higher than all six of the Global X China sector-specific ETFs. That makes FXI a tricky play for long-term investors as those expenses can start to eat away at returns over longer time horizons, but FXI's volatility and exceptional liquidity make the fund ideal for short-term traders.



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