Long before the trade war started, investors have been arguing over whether it’s better to invest in an established market like the US or growing, larger population market like China. This debate has stretched for years, well before the terms FAANG (Facebook (FB), Apple (AAPL), Amazon.com (AMZN),Netflix (NFLX), and Alphabet (GOOG)(GOOGL)) or BAT (Baidu (BIDU), Alibaba (BABA), and Tencent (TCEHY)) were coined.
But now, as the trade war between China and the US continues to heat up, investors have been battling over another China Vs. US technology investments. Perhaps because these stocks have been monster winners and some believe that since these companies are mainly technology stocks, they will be exempt from the pain that could come from the trade war. However, while it is unknown how much the trade war will affect these big technology companies, it should be noted that if each country’s economy suffers from the new tariffs, that the FAANG and BAT stocks could feel some adverse effects.
But in the meantime, if you are still interested in finding some Exchange Traded Funds which will give you exposure to FAANG and BAT stocks, you are in luck. I recently highlighted a few FAANG related ETFs which you can read about here, or continue below for some BAT related ETFs.
Two of the top BAT ETF’s are the KraneShares CSI China Internet ETF (KWEB) and the Invesco China Technology ETF (CQQQ). Both of these ETF’s hold Tencent, Alibaba, and Baidu as there top 3 holdings (and in that order). The three stocks represent 28.94% of CQQQ portfolio and 28.86% of KWEB’s assets. KWEB though only has 37 holdings while CQQQ has 76.
The expense ratios on these two ETF’s are also similar at 0.70% for both CQQQ and KWEB. CQQQ though does have a slightly higher distribution yield of 1.83% compared to 0.70% for KWEB. The most significant difference between the two is that KWEB has $1.10 billion in assets under management while CQQQ has only $322 million.
The next ETF I would like to highlight is the iShares MSCI China ETF (MCHI). This ETF holds Tencent, Alibaba, and Baidu in its tops four holdings, not top three like the two previous ETF’s. But despite those three stocks not making up MCHI’s top three holdings, they still represent 32% of the fund.
The SPDR S&P China ETF (GXC) has the same thing going on, Tencent, Alibaba, and Baidu are three of the funds top four stocks. Furthermore, those three stocks represent 29% of GXC’s assets.
Now if you still want exposure to the BAT stocks but perhaps not so concentrated you can go with something like the Global X Nasdaq China Technology ETF (QQQC) which has all three BAT stocks in its top ten holdings, but they only make up 20% of the fund. Still too much BAT exposure? Alright then maybe the ARK Web x.0 ETF (ARKW) which owns all three BAT stocks but Alibaba isn’t one of the funds top ten holdings.
One more thing to consider before pulling the trigger on the BAT stocks or any China-focused ETF, and that is you are no longer investing in US-based or regulated companies. While foreign equity regulation is getting better, it is still not to the standard of US regulation.
This means companies operating in China can lie about past figures and future sales projections and get away with it. A perfect example of this is when Caterpillar Inc. (CAT), the big US-based heavy machinery company bought the Chinese company Zhengzhou Siwei Mechanical & Electrical Equipment Manufacturing Co for $677 million and then found out the Chinese company has been doctoring their figures for years. Caterpillar eventually took a $580 million goodwill right down for that mistake.
I am not trying to scare you into thinking all Chinese firms are corrupt but know that you shouldn’t “back a Caterpillar dump truck up” when you go buying foreign stocks. But then again, even in the US, we have had Enron, and other companies scam investors, so be aware of how large each position you hold represents and make sure you're comfortable with that before buying and forgetting.
Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: This contributor held long positions in Apple, Tesla, Intel, Google, Amazon.com, Facebook, Priceline and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
