Unsure of what ETFs to choose for your portfolios? Then check out our ETF Focus List 2022

With more than 3,000 ETFs listed on our platform, choosing the right ETFs can be a daunting task, especially for new investors. To help investors sift through the sheer number of ETFs available on various exchanges, we first introduced our ETF Focus List in 2018, with the goal of bringing investors the best-in-class ETFs for every equity and fixed income market across the globe.

The ETFs on our Focus List are selected based on a set of quantitative and qualitative factors. The quantitative factors include expense ratio, liquidity, and tracking difference. Meanwhile, the qualitative factors that we consider are the underlying index and structure of the ETF.

Our ETF Focus List is updated on an annual basis to ensure that our recommendations remain current and relevant for investors. This year is no exception – as we approach the halfway mark of 2022, we have done a refresh of our ETF Focus List. For 2022, we have made several changes to the list in order to feature a wider range of ETFs the world has to offer.

iShares Core CSI 300 ETF (HKEX:2846) – our new China A share recommended ETF

While Chinese equities had a rough 2021, we remain optimistic on them in the coming years. From a monetary policy perspective, China is in a different place compared to the rest of the world. In light of slowing growth, it is likely to keep an easy monetary policy in order to stabilise the economy, which should support the equity market.

China A shares refer to Chinese stocks listed on the Shanghai or Shenzhen Stock Exchange. Two common indices used for this exposure are the CSI 300 index by China Securities Index Co Ltd, and the FTSE China A50 index by FTSE Russell.

The CSI 300 index tracks 300 of the largest companies trading on the Shanghai and Shenzhen Stock Exchanges, and is considered the blue chip index for Mainland China Stock Exchanges. Meanwhile, the FTSE China A50 index tracks 50 of the largest companies trading on the Shanghai and Shenzhen Stock Exchanges.

Seeing that the CSI 300 Index is the more commonly used Mainland China benchmark, and comprises a wider universe of A-share companies compared to the China A50 index, we have decided to change our recommendation from the iShares FTSE China A50 ETF (HKEX:2823) to the iShares Core CSI 300 ETF (HKEX:2846).

Table 1: Key information for the respective ETFs

Removal of Russia from the “Single Market Equity” category

In light of Russia’s invasion of Ukraine, various countries around the world have imposed sanctions on Russia. This includes banning Russia from accessing international financial systems, and restricting export and trades to Russia.

Due to the severity of sanctions and ethical issues facing Russia and Russian companies, we believe that most fund managers will not be able to “wait out” this situation. They will pivot away from Russia, or be forced to close down entirely if they fail to do so.

More importantly, we are cognisant of the fact that armed conflicts are a violation of human rights which causes substantial humanitarian suffering. We have a responsibility to uphold our values and ethics in light of human rights violations. In addition to removing Russia from our ETF Focus List, we have also buy-disabled Russian products, and ceased research coverage on Russia.

Removal of BRIC from “Regional Equity” category

BRIC is an acronym that stands for Brazil, Russia, India and China. Our previous recommended ETF was the iShares MSCI BRIC ETF (NYSE:BKF), which aimed to track the investment results of an index of equities in Brazil, Russia, India, and China.

Heavy sanctions on Russia after it invaded Ukraine, together with restrictions imposed by Moscow, have made trading in most Russian assets virtually impossible for foreigners.

Given that Russian equities have become uninvestable, BlackRock's iShares ceased tracking the investment results of Russian securities in its BRIC ETF and dropped the R in the name. In view of this, we have also removed BRIC from our “Regional Equity” category. 

Added China Property Bonds into “Fixed Income” category

The Chinese property sector saw turbulent times in 2021. Following the dramatic sell-off last year, we believe that investors have priced in a large degree of credit stress. Spreads of China property bonds have also reached one of the highest levels on record.

With the worst likely behind it, 2022 looks to be a better year for China’s property sector. Supportive policy fine-tuning has been rolled out in China’s property sector so as to avert a systemic crisis and stabilise the housing market. With potential spillovers likely to be ring-fenced, we think China property bonds are set for a stronger times ahead.

Not to mention, these bonds offer a combination of higher yields and shorter duration, making them compelling against the current backdrop of impending Fed rate hikes, which are likely to have a greater impact on global peers with lower yields and longer durations.

With this in mind, we have added China Property Bonds to the “Fixed Income” category of our ETF Focus List, and recommend the Premia China USD Property Bond ETF (HKEX:9001) for exposure.

Related article:

China’s 27%-yielding property bonds are set for a better year. Here's an ETF that can benefit  

Other key changes to the list

Beside the changes already mentioned above, we have made notable changes to the “Tactical Plays” category. 

Table 2: Summary of changes made to the “Tactical Plays” category

Firstly, we have removed China Financials from the “Tactical Plays” category. Our previous recommended ETF for China Financials was the Global X MSCI China Financials ETF (NYSE:CHIX), which has many similarities with our recommended ETF for China Banks — ChinaAMC Hong Kong Banks ETF (HKEX:3143).

For instance, both these ETFs have holdings in China Construction Bank (HKEX:939), Industrial & Commercial Bank (HKEX:1398), Bank of China (HKEX:3988), China Merchant Bank Co Ltd (SSE:600036), Agricultural Bank of China Ltd (HKEX:1288) and Postal Savings Bank of China (HKEX:1658) within their top ten holdings (Table 3).

Given that CHIX is US-listed, it is subjected to a 30% dividend withholding tax. After considering the withholding tax, the average forward dividend yield for CHIX is 5.25%, compared to that of 7.29% for the ChinaAMC Hong Kong Banks ETF. This makes it less attractive for income-seeking investors, and hence we have removed China Financials from our ETF Focus List.

Table 3: Similarities between the holdings of HKEX:3143 and NYSE:CHIX

Besides this removal, we continue to make new additions to our ETF Focus List under the “Tactical Plays” category, as we foresee strong secular drivers that underlie the growth of the following thematic sectors:

China Electric Vehicles: Propelled by growing environmental awareness and technological advancements, the electric vehicle and future mobility (EVFM) industry is one of the world’s fastest-growing industries. With the largest domestic market in the world, supportive government policies, and manufacturing prowess, China is a powerhouse within the EVFM space. With this in mind, investors can gain exposure to the sector via the NikkoAM-StraitsTrading MSCI China EV and Future Mobility ETF (SGX:EVS). 

China Clean Energy:  Besides the EV sector, China’s renewable energy sector is also undergoing a rapid expansion as the country progresses towards the goal of peak carbon emissions by 2030 and carbon neutrality by 2060. For investors seeking investment opportunities in China, the renewable energy sector is one to consider. We recommend the Global X China Clean Energy ETF (HKEX:2809) for exposure to this sector.

Cybersecurity: As the world continues to undergo massive digital transformation, cybersecurity has become more important than ever. Cyberattacks have increased in both numbers and severity, prompting authorities to impose new and tighter cybersecurity laws on organisations to protect and secure systems and data. Investors who are keen on this sector can consider the Global X Cybersecurity ETF (NASDAQ:BUG), which is designed to track the performance of companies that are primarily involved in cybersecurity.

Robotics & Artificial Intelligence: Technology continues to advance rapidly, with robots becoming increasingly commonplace both on the manufacturing floor and in our daily lives. Artificial intelligence has also allowed robots to become increasingly efficient. Given the trend towards greater automation, robotics and artificial intelligence are industries of the future, and investors can gain exposure to the sector via the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ).

Agribusiness: Food security has been brought to the forefront amidst rising food prices, and the Russia-Ukraine war. The food business is a critical industry and one that is growing in importance and opportunity for investors, as broader secular trends such as population growth and rising income levels, underpin the industry’s long-term growth prospects. Investors looking to tap into this megatrend should consider the VanEck Vectors Agribusiness ETF (NYSE: MOO).

Metals: The world is moving towards a more sustainable future enabled by green technologies. Rare-earth and strategic metals are an attractive play due to their importance in developing both emerging and established green technologies. With multiple catalysts that could drive demand for rare-earth and strategic metals, investors may want to consider the VanEck Rare Earth/Strategic Metals ETF (NYSE:REMX).

A starting point for your investment journey

ETFs are a great investment tool that allow investors to gain diversified exposure to markets at a low cost. While choosing the right ETF is not rocket science, it can make a difference between investment success and mediocrity.

The objective of our ETF Focus List is to serve as a good starting point for investors by zeroing in on the best-in-class ETFs from the vast number of options available on our platform.

For ETFs which have been removed or replaced (besides Russia-related equities), investors who are holding on to them should not be worried as they remain viable investment options. They will also continue to be available under the Regular Savings Plan (RSP).

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.