For investors looking to access growth out of China, in my opinion it's worth taking a closer look at VanEck's China New Economy ETF (ASX: CNEW).
According to VanEck, the China New Economy ETF gives investors access to China's most fundamentally sound companies. VanEck has determined that certain sectors make up what it refers to as "the new economy". By investing in this ETF, you can gain access to these sectors and ride the wave of growth coming out of China.
What is "the new economy" in China?
VanEck believes that healthcare, consumer staples, consumer discretionary and of course, technology, make up the key sectors for growth in China. VanEck also argues that although China has historically obtained growth from sectors such as the financial, energy and materials industries, policy reform and a transitioning economy has led to a change in growth sectors. Its China New Economy ETF aims to capture this growth by spreading investment across the new sectors.
Tracking and performance
The fund aims to track the performance of the CSI MarketGrader China New Economy Index (AUD). The index is designed to follow the "most fundamentally sound" companies that trade and are headquartered in China.
Using the GARP principle (growth at a reasonable price), the index identifies companies within the new growth sectors that make the cut across 4 categories: growth, value, profit and cashflow. MarketGrader recently announced in its June 2020 rebalancing notes that it had replaced 61 companies within the index, citing that COVID-19 has caused much disruption to the economy and therefore the companies operating within it.
Since its inception on 8 November 2018, VanEck's China New Economy ETF has returned approximately 86% for investors (at the time of writing). The return is sure to put a smile on the face of any early investor, however it is still a young product and I am looking forward to seeing how it performs in the future.
This year alone, CNEW is up more than 32%.
Holdings and fees
The VanEck website provides transparency in regard to CNEW's full holdings. Of the 120 stocks held by the fund, the largest holding only constitutes 1.47%, which is great from a diversity point of view in my opinion.
However, it is worth noting the fund's management fee. Clocking in at 0.95% p.a., this is hefty and certainly at the upper end of ETF fees. Personally, I can live with 0.95% p.a. if the returns continue at current rates (approximately 50% p.a.), however, this is one fee you will need to consider before adding CNEW to the portfolio.
About VanEck
VanEck is a long-standing asset manager, founded in 1955. It has actually been in business a lot longer than some of the well-known asset managers, such as Vanguard (1975) and BetaShares (2009). VanEck is one of the world's largest issues of exchange-traded products (ETPs) and has operations across 6 countries. It is a reliable asset management firm with a long history of solid performance.
Foolish takeaway
Exposure to the Chinese economy is very interesting to me. These days, we are fortunate that we can access incredible products such as international market ETFs directly through the ASX. This means that not only are you able to gain exposure to the staggering growth coming out of these regions, but you are also able to effectively diversify your portfolio.
