Your ETF has more exposure to China than you thought
Search our table to see how much your ETF’s holdings depend on China.
Mentioned: Platinum International ETF (PIXX), Antipodes Global Shares ETF (AGX1), Magellan Global (Open Class) (MGOC), Loftus Peak Global Disruption Mgd Fd ETF (LPGD), Global X Management (AUS) Ltd (SEMI), Magellan Asset Management Limited (MHHT), SPDR® S&P/ASX 200 ETF (STW), Vanguard MSCI Intl ETF (VGS), Vanguard Australian Shares High Yld ETF (VHY)
As the Chinese economy stumbles from technology sector crackdown to property crisis, many Australian ETF investors are more tied to the fortunes of the world’s second largest economy than they may have thought.
A fund’s exposure to a country is usually calculated based on where its holdings are headquartered. But exposure can be materially higher where revenue source is used instead.
By this measure, Magellan High Conviction (ASX:MHHT), Platinum International (ASX: PIXX), Antipodes Global Shares, (ASX: AGX1) Loftus Peak Global Disruption (ASX: LPGD) and several popular thematic ETFs are the most China exposed global equity ETFs, outside of emerging market or Asia-Pacific funds.
Between a fifth and a third of portfolio revenue comes from China for these funds. That's roughly ten percentage points higher than when measured on a headquarters basis.
The gap is due to holdings of multi-national firms that earn income in China but are based elsewhere.
Bronze-rated Platinum International tops the list. On a headquarters basis the fund has a 20% exposure to China, but this jumps to 31% when calculated on a revenue basis. The difference is explains by holdings like miner Glencore, which earns a large chunk of revenue in Asia.
The Loftus Peak Global Disruption Managed Fund’s China exposure triples when moving from a company to revenue measure. Almost a third of revenue is sourced via China, while exposure on a headquarters basis hovers around the 10% mark.
The revenue measure also reveals China exposure where the headquarters measure finds little.
Only 2% of ETFS’s new semiconductor thematic ETF (ASX: SEMI) is tied up in China headquartered firms despite almost a third of revenue coming from the country.
Any exposure to China will concern investors in a year where Chinese markets have been hit by a government crackdown in the technology and education sectors followed by the near default of property giant Evergrande.
The CSI 300 index, which measures the top 300 stocks traded on the Shanghai and Shenzhen bourses is down 8% year-to-date. High-flying tech giants Tencent and Alibaba have led the way, falling 18% and 29%, respectively.
Share market pain reflects struggles in the broader economy, where energy shortages are bumping up against ongoing covid controls. This week, data showed industrial production had slowed again, hovering in contractionary territory.
The economic and financial uncertainty has weighed on global equity funds exposed to China. Platinum International ETF is up 5% in a year where US and Australian equity markets have repeatedly broken records.
Australia’s largest ETF has been a high-profile casualty of roiling Chinese stock markets. Magellan Global Active (ASX: MGOC) lags its Morningstar index by almost 20% and has suffered hundreds of millions in retail withdrawals after well-known bets on Chinese stocks Alibaba and Tencent backfired.
Little opportunity to avoid it
A revenue-based calculation highlights the difficulty of avoiding China exposure for many Australian global equity investors. Even funds that don’t directly own Chinese companies are likely to own shares in multi-national firms that source large chunks of revenue from the world’s second largest economy.
Despite owning almost no Chinese companies, almost 10% of revenue generated within Vanguard’s MSCI Intl ETF (ASX: VGS) comes via China.
Domestic investors aren’t safe either. The weight of iron ore miners across many Australian equity ETFs ramps up their indirect exposure.
SPDR’s ASX 200 tracking fund (ASX: STW) brings in a tenth of revenue from China. This rises to 13% for the bronze-rated Vanguard Australian Shares High Yield ETF (ASX:VHY).
Find your own
Own an ETF we haven’t mentioned? Want to find one with limited exposure to China? Search tickers in our interactive table below.