One–Stop Shop for Asian Markets

01/20/2010 12:00 pm EST

Focus: ETFS

Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Benjamin Shepherd, associate editor of Personal Finance, likes an ETF that offers broad exposure to the principal Asian markets outside Japan.

Although most of our equity funds hold multinational companies, [we] had little direct international exposure until we added Matthews Asia Pacific Equity Income (MAPIX).

But its focus on quality dividend payers and a concentrated portfolio of just 57 names precludes exposure to many of the top growth names in the region. Although it has performed well relative to its category, it’s missed a large chunk of the gains generated in Asia.

iShares MSCI All Country Asia ex-Japan (Nasdaq: AAXJ) provides exposure to all of the key Asian trends, from the infrastructure build-out in China and India to the rise of the Asian consumer and the maturation of regional financials.

With a third of the [ETF’s] portfolio devoted to the financial sector, the fund essentially mirrors the growth of banks and lenders in the local markets. The fund’s largest sector holding, KB Financial Group (NYSE: KB), formerly known as Kookmin Bank, accounts for a little more than 3% of assets.

One of the largest banks in South Korea, KB Financial holds almost half of the country’s bank deposits. With a loan portfolio made up of about half consumer loans and the rest allocated to small and medium sized businesses, the bank is well diversified. And it’s one of the most profitable financials in the region.

The fund’s financial holdings also include the major banks of China and India, as well as a smattering of consumer- oriented, non-bank financials such as China Life Insurance (Hong Kong: 2628, NYSE: LFC).

Information technology is the next largest sector allocation at 21.8% of assets. Taiwan Semiconductor Manufacturing (Hong Kong: TSM, NYSE: TSM) likely manufactured the wafers used to produce the memory chips in your home PC, and you may have a high-definition television made by Samsung Electronics (Korea: 005930, OTC: SSNLF).

Although the West has long been a consumer of Asian electronics, the East is accounting for an ever-growing portion of sales. China is a vast country, and air travel is growing in popularity. On the infrastructure side, Air China (Hong Kong: 0753, OTC: AIRYY) continues to invest heavily in developing its airport facilities.

Business continued largely as usual amid the global recession. Although cargo volumes dipped slightly last year, passenger revenue continued to rise as business travelers increasingly opted for air travel rather than railroad, bus, or automobile.

At an expense ratio of just 0.72%, iShares MSCI All Country Asia ex-Japan allows investors to tap a portfolio of over 200 primarily large-cap names, [and is] a Buy at current prices. (It closed just below $58 Wednesday—Editor.)

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