Chinese equity markets have grown more interesting to international investors in recent years, largely on the back of the country’s economic growth and the widening of its trade relationships. Against that backdrop, China-focused ETFs look like a reasonable way to spread a portfolio.
Picking the right China ETF also comes down to what it costs. This article looks at how to find a China ETF that offers not just growth potential but a competitive fee structure, which is what decides the long-run result.
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The usual costs and management fees on ETFs
Investing in exchange traded funds carries certain costs, management and dealing charges among them. Management fees on ETFs typically run between 0.1% and 2% a year and are already reflected in the price of the ETF. You will find them under the abbreviation TER. TER (total expense ratio) expresses the annual total cost of running the fund as a percentage of its value. It covers management, administration, audit and other operating costs.
When you trade ETFs through a broker, you usually pay a dealing charge on top. Even at so-called commission-free brokers there can be costs investors do not notice. They advertise zero dealing fees, but hidden costs exist: the gap between the buying and selling price, the spread, can be wider than at traditional brokers. Withdrawal fees and currency conversion charges belong on the list too.
The fees compared
All three funds aim at Chinese equities, but each at a different slice of them, and that is precisely why the fees differ.
| Fund | Index tracked | TER |
|---|---|---|
| HSBC MSCI China UCITS ETF | MSCI China | 0.28% |
| KraneShares CSI China Internet (KWEB) | CSI Overseas China Internet | 0.69% |
| iShares China Large Cap UCITS ETF | FTSE China 50 | 0.74% |
HSBC is the cheapest because it tracks a broad index of the entire market. The two dearer ones are narrower: KWEB covers only internet companies, iShares only the fifty largest. With ETFs you nearly always pay for a narrower remit.
All three carry the same names at the top, chiefly Tencent, Alibaba, Meituan and PDD. Their weightings differ, though: in the narrow KWEB a handful of technology firms make up a large share of the fund, while the broad MSCI China is less concentrated.
KWEB, KraneShares CSI China Internet ETF
KWEB tracks the CSI Overseas China Internet index, which covers Chinese technology-focused companies. The index is built on market capitalisation and includes companies traded in Hong Kong, on NASDAQ and on the New York Stock Exchange.
KWEB gives access to Chinese internet firms offering services comparable to those of Google, Facebook or Amazon. The fund also lets investors benefit from the growing domestic consumption of China’s middle class.
The annual fee on this ETF is set at 0.69% of the amount invested. That is on the high side by ETF standards and can have a meaningful effect on the long-run result, because higher fees erode the accumulated value of an investment noticeably over time.
HSBC MSCI China UCITS ETF
This ETF tracks the performance of the MSCI China equity index. It invests in a diversified portfolio of shares in companies based in China or running their main business there. The aim is to give investors exposure to most of the Chinese equity market and to mirror the performance of MSCI China. The index covers large and mid-sized companies and captures roughly 85% of the market capitalisation of shares traded on Chinese markets.
The HSBC MSCI China UCITS ETF charges an annual management fee of 0.28% p.a. It applies to the total value of the holding and reflects the cost of running the fund. Measured against other China ETFs it is relatively low.
iShares China Large Cap UCITS ETF
The iShares China Large Cap UCITS ETF USD is managed by BlackRock. Its aim is to track the FTSE China 50 index, which covers the 50 largest companies in China.
The fee is 0.74% p.a., the annual cost of holding this fund. In practice that means the manager charges 74 cents a year on every 100 dollars invested. The fee covers the fund managers’ pay, administration, marketing and other operating expenses.
Investing regularly in China ETFs with XTB
XTB’s investment plans suit smaller investors too, those starting with modest sums who want some exposure to the Chinese market. XTB offers a wide ETF range, which makes it possible to follow various indices, China-focused ones among them, or to target specific sectors and regions.
That lets investors build a diversified portfolio without picking each instrument separately. For anyone interested in China, XTB carries a number of China ETFs covering different sides of that economy, from technology through consumer goods to finance and industry.
77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Despite the advantages and the low costs of ETF investing, every investment carries risk and the return of the original amount is not guaranteed. Investors should weigh their objective and risk tolerance carefully before starting.
Conclusion
The HSBC MSCI China UCITS ETF clearly carries the lowest annual fee at 0.28% p.a. The iShares China Large Cap UCITS ETF is higher at 0.74% p.a., reflecting its focus on the largest Chinese companies. KWEB, specialised in the Chinese internet sector, charges 0.69% p.a., in line with its technology focus and the higher risk and reward that come with it.
The comparison shows that choosing the right ETF depends not only on fees but on your objective and the sector you want.