China vs. Emerging Markets | 2 August 2020

In this novel environment, advisors are not only thirsting for new ideas, but re-calibrating their fundamentals. They’re also learning who their clients are when faced with volatility. 

Souring relations between the United States and China, punctuated with bitter consulate closures, has thrust market sentiment downwards. Investors believe this phenomenon benefits emerging markets and China—China funds have enjoyed three exceptional weeks of asset flows fueled by strong interest in emerging market funds. How can we capitalize on these trends?

iShare’s FXI is a popular option, but we’ve found several alternatives that potentially improve on return, risk, investment costs, and use of capital. Despite a market cap just 33% of FXI’s, the Asia-focused AIA leads the pack.

Advisor-favorite and category-leader MCHI may not be the strongest option for China exposure. All-Asia fund AAXJ boasts a Replacement Quality Score of 90, while China-only choice CHN also offers superior efficiency. 

State Street’s GXC is among the rare funds that hold all Chinese shares across all market cap sizes. Nonetheless, our platform reviewed over 4,100 fund strategy scenarios to come up with MCHI and GMF as alternatives. These funds earned Replacement Scores of 93 and 90 by potentially improving risk and expense along with lowering use of capital.

What We’re Reading

• China Matters More Than Ever – Scott Minerd of Guggenheim on the importance of the relationship between the US and China economies and resolving the geopolitical tensions.
• ETF Investors Pour into China in 3rd Week of EM Flows – Bloomberg article highlighting asset flows into China funds for third straight week as part of EM popularity.
• Valuation Inflation – The Market in 12 Charts – Discussion of the recent valuation appreciation reflected in 12 charts with information from Bianco Research.
• Active ETFs Scorecard – The latest from ETF.com that discusses recent performance of active ETFs and the top performers.
• Investors Raise Cash as US Recovery Wobbles, Options Strategies Profit – Reuters article describes how the tapering of the recovery and enhanced volatility has led options investor to capitalize on zigzagging price action.
• The Surprising Benefits of Working Longer – Larry Swedroe discusses the financial and psychological benefits and outcomes of working later in life.
• Are Asset Class Correlations at a Permanently High Plateau – The latest from The Capital Spectator on asset class correlations and why they’re uncharacteristically high.
• State Street Gold Fund is Now ETF-Lands Biggest Cash Machine – Major asset flows into gold fund with higher expense ratios leading to record profits for State Street.
• Global Tail Risks Remain a Threat in 2020 – Nouriel Roubini – Project Syndicate article from Roubini that revisits White Swans in 2020 and their market impact.

Our Top Posts

• [White Paper] Active Management Is in Trouble (Again)
• Portformer Performance During Market Correction
• Coronavirus Twitter Influencer Analysis
• Tactical Alert: Adjusting to ETF-ETP Fund Closures

Connect with Us

Hop on a quick, scheduled 15 min Zoom call with us and explore some new ideas about how to engage your clients and families. 

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Have a great week!

Best,

John DiBenedetto and the Portformer Team