After several difficult years, the Chinese market is booming and the Franklin FTSE China ETF (NYSEARCA:FLCH) appears to be the most effective way to invest in this turnaround.
Based on its diversified exposure to Chinese stocks, highly valued top holdings, attractive 3.5% dividend yield, and best-in-class expense ratio, I recommend this overlooked $108.6 million investment from Franklin Templeton. I'm bullish on ETFs. Additionally, Wall Street analysts believe China-focused ETFs have significant upside potential of nearly 30%.
China currently looks like an attractive place to invest as it may be in the early stages of a significant recovery, and FLCH is the most attractive way to invest in China through an ETF.
What is the FLCH ETF's strategy?
FLCH's strategy is elegant in its simplicity. According to fund sponsor Franklin Templeton, FLCH “provides access to the Chinese stock market, allowing investors to gain accurate exposure to China at a low cost.”
China's comeback
After several years of hardship, China's economy finally appears to have found its footing and is ready to bounce back.
China recently reported its GDP growth for the first quarter of 2024. Despite the many misfortunes and dark clouds surrounding China, the results were surprisingly convincing. GDP grew by 5.3% year-on-year, which exceeded experts' expectations.Economist survey results Reuters Growth is expected to be 4.6%. This not only showed strong year-on-year growth, but also sequential growth, as China's GDP growth rate in the previous quarter was 5.2%.
Meanwhile, the country's Purchasing Managers' Index (PMI) showed manufacturing activity rose for the first time in six months, and another survey showed it was the highest in a year. Much of this strength comes from high-tech manufacturing and production of electric vehicles (EVs), batteries, and solar panels.
To be clear, not everything looks rosy in China, and the real estate sector still faces challenges (real estate investment fell by 9.5% in the quarter, and new property sales fell by 27.6%) ). However, things are looking better than ever, creating an opportunity to invest in what could be the very early stages of a new bull market in China.
FLCH: Highly Rated Holdings
FLCH is highly diversified. The company holds 958 Chinese stocks, with the top 10 holdings accounting for 39.9% of its assets. Below is a summary of his top 10 FLCH holdings using TipRanks' holdings tool.
In addition to being well diversified within China, FLCH provides investors with exposure to a group of highly valued top stocks. Notably, 9 out of 10 of FLCH's top 10 stocks boast Smart Scores equivalent to Outperform. Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score of 1 to 10 based on eight key market factors. A score of 8 or higher corresponds to an outperform rating.
FLCH itself features an ETF Smart Score of 8, which is the equivalent of Outperform.
These holdings are not only highly valued, but also incredibly cheap. FLCH's holdings have an average price-to-earnings ratio of just 12.4. This is the S&P 500 (SPX) is trading at 22.6x earnings. This cheap valuation allows FLCH to take a more defensive stance and also leaves it with more runway for capital appreciation.
separation from the group
What sets FLCH apart from its competitors is cost.
FLCH has a low expense ratio of just 0.19%, making it an extremely cost-effective way to invest in China. This 0.19% expense ratio means that an investor who allocates his $10,000 to FLCH will pay only $19 in fees per year.
Not only is this a reasonable fee for ETFs overall, but it's especially advantageous for international ETFs (as these ETFs tend to charge higher fees), and it's also particularly advantageous for international ETFs (as these ETFs tend to charge higher fees), as well as for FLCH's main competitors. It's significantly cheaper than the fees charged by China-focused ETFs.
For example, the much larger and more popular iShares MSCI China ETF (NASDAQ:MCHI) has $4.7 billion in assets under management (AUM) and charges a significantly higher fee of 0.59%. In addition, Kraneshares CSI China Internet ETF (NYSEARCA:KWEB), the largest Chinese ETF with $6 billion in assets under management, dwarfing FLCH, charges an even higher 0.69%. Finally, the iShares China Large Cap ETF (NYSEARCA:FXI) also has significantly larger assets under management at $4.4 billion, and charges a significantly higher fee of 0.74%.
To illustrate how this fee difference affects you over time, consider how much an investor who invested $10,000 in each fund would pay in total over 10 years. If each fund maintained its current expense ratio and continued to earn 5% annually going forward, an investor in FLCH would pay $241 in fees over his 10 years. Meanwhile, during the same period, MCHI investors will pay $738, KWEB investors $859, and FXI investors $918.
It's unclear why these three ETFs are so much more popular than FLCH (in terms of AUM) given the large difference in costs, but this is an advantage for FLCH investors.
FLCH has an attractive dividend
FLCH makes investment even more attractive with its generous dividends. The China-focused fund has an attractive yield of 3.3%. This is significantly higher than the S&P 500's average yield of 1.4%.
We also put FLCH in the lead when it comes to other popular China ETFs. KWEB's yield is 1.7%, FXI's yield is 3.0%, and MCHI's yield is 3.3%, which is the same level as FLCH.
Is FLCH stock a buy, according to analysts?
Turning to Wall Street, FLCH has a Moderate Buy consensus rating, based on 166 buys, 782 holds, and 11 sell ratings assigned over the past three months. Masu. FLCH's average price target of $21.07 implies an upside potential of 29.2%.
The best way to invest in the newly attractive Chinese market
In conclusion, China appears to be slowly but surely entering the early stages of economic recovery, making cheap Chinese stocks an attractive investment. I believe his FLCH is the best way to invest in this theme, and based on its best-in-class expense ratio, attractive 3.5% dividend yield, and diversified portfolio of highly valued Chinese stocks, this undervalued I'm bullish on ETFs that are valued. Moreover, analysts see significant upside potential of over 30%.
disclosure
