Let’s Trade - ETF/Fund

The easier way to take advantage of the red hot China stock market is through Exchange Traded Funds - ETF. ETF is a security that represents an index, a commodity or a basket of assets like a fund, but trades like an ordinary stock on an exchange i.e. you can trade it through your broker or any online broker like E-Trade, Ameritrade, Charles Schwab... Here are some characteristics you have to know about ETFs:
 

• You can trade them as an ordinary stocks on an exchange.
• You can sell, sell short and buy ETFs on margin.
• Options are available for some ETFs.
• ETFs MAY trade at a premium or discount to the net value of asset (NAV) they represent.

The followings are some ETF/fund you can trade in the U.S.:

H-Shares

• FXI - iShares FTSE/Xinhua China 25 Index Fund (NYSE:FXI) ^{editor’s choice}
• An index ETF from iShares of Barclays PLC.
• It can be traded as ordinary stock in the U.S. (NYSE:FXI)
• It seeks investment results that correspond generally to the price and yield performance of the FTSE/Xinhua China 25 Index.
• The FTSE/Xinhua China 25 Index is an index of the largest 25 Chinese companies comprising H-Shares and Red Chip Shares.
• 41% of the ETF is invested in financial sector, 18% in telecommunication, 15% in oils and gas, 12% in materials, 11% in industrials and 3% in utilities.
• The premium/discount to its NAV is minimal since it is an index fund
• Reasons to buy:
• The ETF covers the banking sector that is not listed in any US exchange.
• The heavy holding in banking and insurance will benefit on the uptrend of interest rate in China.
• The ETF covers most of the common ADR traded in the US such as ACH, CHL, LFC, PTR and SNP.
• It is good for investors who want to bet on the China boom rather than the performance of individual company.

A-Shares

• CAF - Morgan Stanley China A Share Fund (NYSE:CAF)
• Managed by Morgan Stanley.
• A closed-end fund that can be traded as ordinary stock in the U.S. (NYSE:CAF).
• It invests 80% of its assets in Chinese A-Shares and 20% in other types of investments in China.
• The fund traded at 11% (as at 7/13/2007) discount to its net asset value (NAV).