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4 ETFs Unexpectedly Rocked by China Turmoil - ETF News And Commentary

Sweta Killa

After stabilizing for three weeks, the Chinese stock market resumed its decline with the Shanghai Composite Index tumbling nearly 8.5% in Monday’s trading session. This represents the biggest one-day drop in more than eight years. The index extended its losses, falling nearly 4% early in Tuesday session (read: Inside The Crash in China ETFs).  

The massive plunge came following the disappointing manufacturing numbers that reignited fresh concerns of a slowdown in the world's second largest economy. This is especially true as the flash Caixin/Markit China Purchasing Managers' Index (PMI) surprisingly dropped to a 15-month low of 48.2 in July from 49.2 in June. This is also the fifth month in a row when PMI is less than 50.

The sharp sell-off was not only confined to China but spread worldwide with rough trading in the Asian, European, and U.S. markets. Additionally, it added to the concerns for the emerging markets, which are already fear a Fed rates hike later this year, leading to sliding currencies.

Further, as China is the world’s largest consumer of raw materials, the slump in the economy has stressed the key commodity prices like copper, oil and gold. In fact, the Thomson Reuters CRB commodities index fell to the lowest level in six years (read: 2 Commodity ETFs Surging Double Digits in 1H).

While there have been losers in every corner, we have highlighted four ETFs that were unexpectedly crushed by the China turmoil in Monday session. Interestingly, none of these actually belong to China but are indirectly tied to it.

Guggenheim Solar ETF (TAN)

This ETF targets the global solar industry by tracking the MAC Global Solar Energy Index. It holds 29 securities in its basket with the largest allocation going to the top firm – SunEdison (SUNE) – at 8.2% of total assets. Other firms hold less than 7% share. Chinese firms dominate the fund’s portfolio at nearly 46.7%, followed by the U.S. (37.4%) and Canada (5.4%).

The product has amassed $302.9 million in its asset base and trades in solid volume of around 275,000 shares a day. It charges investors 70 bps in fees per year. The fund lost 2.5% on the day but is up 1.4% in the year-to-date timeframe.

Global X Central Asia & Mongolia ETF (AZIA)

This fund provides exposure to 21 stocks of Central Asia that derive revenues or are traded in Mongolia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan or Uzbekistan. This is easily done by tracking the Solactive Central Asia & Mongolia Index. The product is highly concentrated on the top five firms at 40.4% while energy and basic materials take the top two spots in terms of sector with roughly one-third share each (see: all the Emerging Asia Pacific ETFs here).

This is unpopular and illiquid ETF in the emerging market space with AUM of just $2.4 million and average daily volume of around 2,000 shares. Expense ratio came in at 0.69%. AZIA shed about 2.9% on the day and has lost 8.9% so far this year.

Global X Copper Miners ETF (COPX)

This ETF targets the copper mining industry across the globe and follows the Solactive Global Copper Miners Index. Holding 23 stocks in its basket, it is highly concentrated on the top firm – Sandfire Resources – at 8.7% while other firms hold no more than 5.94% share. In terms of a national breakdown, Canada takes the top spot with 30% of assets while Australia, Mexico and United Kingdom round out the next three spots with double-digit exposure.

The product has managed $18.3 million in AUM while charges 65 bps in fees per year. It trades in light volume of 36,000 shares a day on average. The fund lost about 4.5% on the day and has piled up a huge loss of over 25% for the year so far.

iPath Pure Beta Industrial Metals ETN (HEVY)

This note seeks to match the performance of the Barclays Commodity Index Industrial Metals Pure Beta Total Return Index, which is composed of five futures contracts on industrial metals. Four futures contracts (aluminum, nickel, copper and zinc) are traded on the London Metal Exchange and the other (copper) is traded on the COMEX division of the New York Mercantile Exchange (read: What is in Store for Industrial Metal ETFs After China Rout?).

Unlike many commodity indexes, this product can roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology.

The ETN manages just $0.5 million in asset base and sees paltry volume of about 300 shares a day, suggesting additional cost beyond the annual fee of 75 bps per year. The note lost 7.2% on the day, bringing the year-to-date loss to 12%.

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GUGG-SOLAR (TAN): ETF Research Reports
GLBL-X CTL A&M (AZIA): ETF Research Reports
GLBL-X COPPER (COPX): ETF Research Reports
IPATH-PB IND MT (HEVY): ETF Research Reports
SUNEDISON INC (SUNE): Free Stock Analysis Report
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