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WisdomTree Reconfigures China ETF

WisdomTree (WETF), the fifth-largest U.S. issuer of exchange traded funds, said today it has converted the WisdomTree China Dividend Ex-Financials Fund (CHXF) to the WisdomTree China ex-State-Owned Enterprises Fund (CXSE).

The newly converted ETF tracks the WisdomTree China ex-State-Owned Enterprises Index (CHXSOE), which tracks Chinese companies that are not state-controlled. State owned enterprises are defined as government ownership of more than 20% of outstanding shares of companies, according to WisdomTree.

By eliminating exposure to China’s state-run companies, the CXSE features scant exposure to banks and energy stocks. In fact, the WisdomTree China ex-State-Owned Enterprises Index has a weight to banks of just 3.5% and no energy exposure, according to issuer data.

Rather, the newly converted ETF is heavy on technology and consumer discretionary names. Software and services names account for almost 28% of the WisdomTree China ex-State-Owned Enterprises Index with retailers and apparel stocks combining for over 15%. [China Internet ETF Staves Off Alibaba Slump]

CXSE’s underlying index is home to an array of U.S.-listed Chinese Internet darlings, including Alibaba (BABA), Baidu (BIDU), JD.com (JD) and Ctrip.com (CTRP).

“WisdomTree’s China ex-State-Owned Enterprises Fund (CXSE) provides access to China’s private sector and higher growth potential while limiting exposure to SOEs. We believe governments may not always be the best stewards of capital and government-owned companies might be influenced by a broader set of interests, beyond generating profits for shareholders,” said Jeremy Schwartz, WisdomTree Director of Research, in a statement.

CXSE is not WisdomTree’s first foray into emerging markets ETFs that explicitly steer clear of state-owned enterprises. In December, the issuer introduced the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) . True to its name, the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund excludes state-run oil giants such as Petrobras (PBR) and Russian oil companies.

By excluding state-controlled firms, the WisdomTree Emerging Markets ex-State-Owned Enterprises Fund ratchets up exposure to the emerging markets consumer story, although the new ETF is a not a dedicated consumer fund. For example, XSOE’s combined weight to the technology consumer discretionary and staples sectors, three of the fund’s top four sector weights, is 50%. [This ETF Excludes State-Run Companies]

XSOE offers exposure to 19 emerging markets, but China is the ETF’s largest geographic weight at almost 17.1%.

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.