WITH over 3,000 ETFs listed on our platform, choosing the right ETFs can be a daunting task, especially for new investors. To help investors sift through the vast number of ETFs available on various exchanges, we first launched our ETF Focus list in 2018, with the aim of providing investors with the best-in-class ETFs for each equity and fixed income markets around the world.
The ETFs in our Focus list are selected based on a combination of quantitative and qualitative factors. Quantitative factors include expense ratio, liquidity and tracking difference. Meanwhile, the qualitative factors we consider are the underlying index and the structure of the ETF.
Our Focus ETF list is updated annually to ensure our recommendations remain current and relevant to investors. This year is no exception – as we approach mid-2022, we’ve updated our ETF focus list. For 2022, we’ve made several changes to the list to provide a wider range of ETFs the world has to offer.
While Chinese equities have had a difficult 2021, we remain bullish on them for years to come. From a monetary policy perspective, China is in a different situation compared to the rest of the world. Given the slowdown in growth, it should maintain an accommodative monetary policy in order to stabilize the economy, which should support the equity market.
China A-shares refer to Chinese stocks listed on the Shanghai or Shenzhen stock exchange. Two indices commonly used for this exposure are the CSI 300 Index from China Securities Index Co Ltd and the FTSE China A50 Index from FTSE Russell.
The CSI 300 Index tracks 300 of the largest companies listed on the Shanghai and Shenzhen stock exchanges, and is considered the premier index for mainland China stock exchanges. Meanwhile, the FTSE China A50 Index tracks 50 of the largest companies listed on the Shanghai and Shenzhen stock exchanges.
Since the CSI 300 index is the most commonly used benchmark in mainland China and includes a broader universe of A-share companies compared to the China A50 index, we have decided to change our recommendation of the iShares FTSE China A50 ETF to the iShares Core ETF CSI 300.
Removal of Russia from the Single Market Equity category
In light of Russia’s invasion of Ukraine, various countries around the world have imposed sanctions on Russia. This includes barring Russia from accessing international financial systems and restricting exports and trade to Russia.
Due to the severity of the sanctions and ethical issues facing Russia and Russian companies, we believe that most fund managers cannot “wait” for this situation. They will walk away from Russia or be forced to shut down completely if they don’t.
More importantly, we are aware that armed conflict is a violation of human rights that causes significant humanitarian suffering. We have a responsibility to uphold our values and ethics in the face of human rights abuses.
In addition to removing Russia from our ETF focus list, we have also banned the purchase of Russian products and ceased research coverage on Russia.
Withdrawal of the BRIC from the “Regional Equity” category
BRIC is an acronym that stands for Brazil, Russia, India and China. Our previous recommended ETF was the iShares MSCI BRIC ETF, which aimed to track the investment results of an equity index in Brazil, Russia, India and China.
The heavy sanctions imposed on Russia after its invasion of Ukraine, as well as restrictions imposed by Moscow, have made trading in most Russian assets virtually impossible for foreigners.
As Russian stocks have become uninvestable, BlackRock’s iShares has stopped tracking investment results for Russian stocks in its BRIC ETF and dropped the R in the name. With this in mind, we have also removed BRIC from our “Regional Equities” category.
Added Chinese real estate bonds to the “Fixed income” category
China’s real estate sector has seen some turbulent times in 2021. Following last year’s dramatic sell-off, we believe investors have priced in credit stress to a large extent. Chinese real estate bond spreads have also reached one of the highest levels on record.
With the worst probably behind, 2022 seems to be a better year for the Chinese real estate sector. Supportive policy adjustment has been implemented in the Chinese real estate sector to avoid a systemic crisis and stabilize the housing market. With potential fallout likely to be isolated, we believe Chinese property bonds are poised for stronger times ahead.
Not to mention, these bonds offer a combination of higher yields and shorter duration, making them attractive in the current environment of impending Fed rate hikes, which are likely to have a bigger impact on global peers. with lower yields and longer durations.
With this in mind, we have added China property bonds to the Fixed Income category of our ETF Focus list and recommend the Premia China USD Property Bond ETF for exposure.
Other important list changes
In addition to the changes already mentioned above, we have made some notable changes to the “Tactical Plays” category.
First, we removed China Financials from the “Tactical Plays” category. Our previous recommended ETF for China Financials was the Global X MSCI China Financials ETF, which has many similarities to our recommended ETF for Chinese banks – ChinaAMC Hong Kong Banks ETF.
For example, these two ETFs hold stakes in China Construction Bank, Industrial & Commercial Bank, Bank of China, China Merchant Bank Co Ltd, Agricultural Bank of China Ltd and Postal Savings Bank of China among their top ten holdings.
Since CHIX is listed in the United States, it is subject to a 30% withholding tax on dividends. After taking into account the withholding tax, the average forward dividend yield for CHIX is 5.25%, compared to 7.29% for the ChinaAMC Hong Kong Banks ETF. This makes it less appealing to income-seeking investors, so we removed China Financials from our ETF focus list.
In addition to this removal, we continue to make new additions to our ETF focus list in the “Tactical Games” category, as we anticipate strong secular drivers underpinning growth in the following thematic sectors:
Electric vehicles in China: Driven by growing environmental awareness and technological advancements, the electric vehicle and future mobility (EVFM) industry is one of the fastest growing industries in the world. With the largest domestic market in the world, supportive government policies and manufacturing prowess, China is a powerhouse in the EVFM space. With this in mind, investors can gain exposure to the sector through NikkoAM-StraitsTrading MSCI China EV and Future Mobility ETF.
China Clean Energy: In addition to the electric vehicle sector, the renewable energy sector in China is also experiencing rapid expansion as the country moves towards the goal of peak carbon emissions by 2030 and neutrality carbon by 2060. For investors looking for investment opportunities in China, the renewable energy sector is one to consider. We recommend the Global X China Clean Energy ETF for exposure to this sector.
Cybersecurity: As the world continues to undergo a massive digital transformation, cybersecurity has become more important than ever. Cyberattacks have increased in number and severity, prompting authorities to impose new, tougher cybersecurity laws on organizations to protect and secure systems and data. Sector-savvy investors can consider the Global X Cybersecurity ETF, which is designed to track the performance of companies primarily involved in cybersecurity.
Robotics and Artificial Intelligence: Technology continues to advance rapidly, with robots becoming more commonplace both on the manufacturing floor and in our daily lives. Artificial intelligence has also allowed robots to become increasingly efficient. Given the trend towards greater automation, robotics and artificial intelligence are industries of the future, and investors can gain exposure to the sector through the Global X Robotics & Artificial Intelligence ETF.
Agribusiness: Food security has come to the fore in the context of rising food prices and the Russian-Ukrainian war. The food industry is a critical industry that is growing in importance and opportunity for investors as broader secular trends such as population growth and rising income levels underpin the long-term growth prospects of the industry. ‘industry. Investors looking to take advantage of this megatrend should consider the VanEck Vectors Agribusiness ETF.
Metals: The world is moving towards a more sustainable future thanks to green technologies. Rare earths and strategic metals are an attractive game because of their importance in the development of emerging and established green technologies. With multiple catalysts that could drive demand for rare earths and strategic metals, investors can consider the VanEck Rare Earth/Strategic Metals ETF.
A starting point for your investment journey
ETFs are an excellent investment tool that allows investors to gain diversified market exposure at low cost.
While choosing the right ETF isn’t rocket science, it can mean the difference between investment success and mediocrity.