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How do I Choose the Best China Index Fund?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 18 September 2016
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In general, the best advice for choosing a China index fund is to look at the full context of the fund, what it offers, and how it can complement other investments through affordable costs, good tax positioning, and more. Beyond this, there are specific things that investors can look out for to optimize China index fund purchases. Each China index fund is different, but many of them have a lot in common.

A China index fund is a fund that is set up to mirror the action of a larger index. In the case of Chinese index funds, the stocks are mostly Chinese national stocks or somehow related to Chinese industries or exchanges. The China index fund offers a more diversified play on the Chinese economy.

Investors should understand what they are getting into with purchases of China index funds. As experts point out, those who are buying these kinds of products are investing in the belief that the Chinese economy will grow. China is considered an emerging market, one of the foremost economies poised to benefit in the next century, but it’s worth looking at just how much of an investor’s portfolio should be based on Chinese growth.

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Another very good tip for choosing a China index fund is to look at whether that fund is actively or passively managed. Different investors have different philosophies on this, but the key thing to understand is that a broader index fund is more passively managed. This makes less work for fund managers, as well as offering more stability and less volatility in the price actions of the fund. That’s why some investors consider a Chinese index fund to be twice as good as an active fund, where managers can end up taking a lot of the yields through a high “expense ratio,” or annual cost.

Many investors who take time to choose the most appropriate China index fund will look at what’s actually in the diversified basket of stocks that the fund holds. They may have in-depth knowledge of an actual Chinese exchange, and be able to compare it to the fund to see how that fund will realistically generate returns. Again, because index funds are more stable than some other fund types, the results can be more predictable overall.

Investors can also look at access. Some Chinese index funds have better accessibility through US exchanges or brokerage firms. Investors might even contemplate whether they can take advantage of an exchange traded fund (ETF). A China index fund ETF is a Chinese index fund that buyers can easily buy, sell and keep tabs on over the internet throughout a trading day. The ETF is appealing to a more “short term” or urgent strategy for an investor. Although some financial pros warn against getting caught up in a “day trading” or “swing trading” strategy, the fact is that ETFs can offer better price control and flexibility than some other fund types.

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