Many regard the 21st century as the “Century of Asia.” As America has seen a relative decline, nations — such as China and India — growing their middle classes have placed Asia in a more influential position. Many companies within these countries have also contributed this rise. Although some trade in the U.S. as ADRs, most of these companies trade on the over-the-counter markets, if they trade at all. Fortunately, the ones not trading directly in the U.S. can be found in Asian ETFs.
Those who prefer mutual fund or ETF investing often stick with S&P 500 trackers such as the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Although SPY remains popular, it focuses heavily on U.S. equities. Those wanting an “S&P 500 of Asia” or an S&P equivalent of a specific country often remain unaware of their options.
However, these 5 Asian ETFs will allow risk-averse investors to benefit from the rise of Asia’s largest and wealthiest economies.
5 Asian ETFs for International S&P 500 Equivalents: Asia
The iShares Asia 50 ETF (NASDAQ:AIA), unlike other Asian ETFs, serves as a proxy for the larger companies across East Asia. It excludes Asian economic powers such as Japan and India, focusing primarily on countries that began their development sometime in the second-half of the 20th century. Hence, most of the equities are companies from China, Hong Kong, Singapore, South Korea and Taiwan. Despite the name, this is an index made up of 58 equities.
Technology makes up a large part of the fund. China’s Tencent (OTCMKTS:TCEHY) stands as its largest holding, making up 14.6% of the fund. South Korea-based Samsung is its second-largest position at about 10.7%. Taiwan Semiconductor (NYSE:TSM) comes in third. Despite the tech focus, the fund also holds financial, healthcare, real estate and energy stocks.
AIA manages about $1 billion in assets. Management fees stand at 0.50% of the fund’s value. Since its 2009 lows, the fund has moved steadily higher. Returns averaged about 6.5% per year over the last ten years. And performance is improving. The last 12 months saw a 12.2% increase in the fund’s value.
AIA takes a broader approach than country-specific Asian ETFs. But this fund offers more country-based diversification and acts as an ETF for some of the smaller but still wealthy economies in the region.
5 Asian ETFs for International S&P 500 Equivalents: China
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Most investors associate the rise of Asia in the 21st century with China. China remained an isolated, underdeveloped country until U.S. President Richard Nixon helped open the People’s Republic in 1972. This led to the Communist nation opening up their economy beginning in the late 1980s. Personal incomes and the size of China’s middle class have grown steadily since. Many now believe it will supplant the United States as the world’s leading nation within a few decades.
Among Asian ETFs, the Wisdomtree ICBCCS S&P China 500 (NYSEARCA:WCHN) serves as the closest match to the S&P 500 of China. The ETF consists of 472 holdings. Like with AIA, Tencent stands as WCHN’s largest holdings at about 9.4% of the fund. Other stocks in its top ten holdings include Alibaba (NYSE:BABA), Baidu (NASDAQ:BIDU) and China Mobile Ltd. (NYSE:CHL). Financial services, technology and consumer cyclicals make up its largest sector weightings.
Currently, it holds only about $12.5 million in assets and levies a fee of 0.55%. WCHN also is a very new fund. It started trading in December 2017 and has lost just under 8% of its value since then.
Still, with a short history that includes a trade war, gauging long-term performance remains difficult. However, with much of the growth potential of China still yet to be tapped, WCHN has room to grow.
5 Asian ETFs for International S&P 500 Equivalents: India
India has emerged as the world’s fastest-growing economy, growing at a rate of 7.7% in the latest quarter. Even with a per capita GDP around just $2,100, India’s large population gives it the world’s sixth largest GDP. India’s population stands at just over 1.32 billion, only slightly smaller than China’s. The U.N. estimates India will have the world’s largest population by 2022.
Those looking to benefit from this growth with a large group of stocks should look at the WisdomTree India Earnings Fund (ETF) (NYSEARCA:EPI). Though several Asian ETFs focus on India, few match EPI in diversity. EPI consists of 301 Indian equities. Reliance Industries stands as the top holding at about 9.8%. Infosys Ltd (NYSE:INFY), which also has a U.S. presence, makes up around 9.45% of the fund. Technology, financial services and energy make up a combined 60% of the fund.
The fund manages over $1.8 billion in assets. It levies a fee of 0.84%. Though the fund has only seen a 2.4% return over the last 12 months, its five-year average stands at about 10.8%.
With a low per capita GDP, a large population, and the world’s highest growth rate, India — and this fund — is poised to enjoy strong long-term growth.
5 Asian ETFs for International S&P 500 Equivalents: Japan
Japan reached the high water mark of its economic power in the 1980s. It suffered a relative decline starting in the 1990s, but Japan exists as the developed economy surrounded by still-developing nations. Hence, it remains influential in the region. The Japanese yen accounts for about 4% of foreign exchange reserves, the highest in the region.
The Nikkei 225 has become Japan’s best-known index. However, that acts more like a Dow 30 equivalent. For an S&P 500 equivalent, the closest index in Japan remains the Topix 500. With the most stocks covered, the iShares MSCI Japan ETF (NYSEARCA:EWJ) stands as the closest S&P equivalent among Asian ETFs focused on Japan.
EWJ’s invests in 322 different companies in Japan. Its top holding is a 4.3% stake in automaker Toyota (NYSE:TM). This is the only company that makes up over 2% of the fund. Brands familiar to Americans such as Sony (NYSE:SNE) and Honda (NYSE:HMC) are also among its top-ten holdings.
As a fund representing a mature economy, it does not currently experience the growth rate of its neighbors. However, the fund managed a 9.5% growth rate over the last 12-months. Its ten-year growth rate stands at 3.1% — and that includes the effects of the 2008 financial crisis. Although growth may not compare to other countries in the region, investors who want a measure of stability might consider a position in Asia’s most developed market.
5 Asian ETFs for International S&P 500 Equivalents: South Korea
Another Asian economy to emerge has been South Korea. Today South Korea has become the 4th largest economy in Asia and the 11th largest in the world. Much like some Japanese brands in the late 20th century, Korean brands such as Samsung and Hyundai (OTCMKTS:HYMTF) now hold a prominent position on the American retail landscape.
Among Asian ETFs, the iShares MSCI South Korea ETF (NYSEARCA:EWY) serves as the closest equivalent to a South Korean S&P 500. The fund consists of 115 South Korean equities. Samsung holds the most significant position by far in the fund, representing almost 22% of the ETF. Memory chip producer SK Hynix makes up the second-largest position at around 6%. Due in large part to these holdings, technology stocks make up about 41% of the overall fund. Companies such as Hyundai and Kia Motors also hold prominent positions in the fund.
The fund manages about $3.63 billion in assets and charges a management fee of 0.62%. Performance has lagged — the fund has lost about 11.75% of its value since the beginning of the year. Average performance during the previous ten years has stood at about 4.4%. However, the fund has fallen by about 15% from its January highs. Trade issues have likely held the ETF for this export-oriented economy back.
Trade disputes may make EWY a less favorable play for now. However, with a Kospi Index price-to-earnings ratio of just above 11, EWY could take off when conditions become more favorable.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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