Some investors in ETFs are absorbing a hard lesson about the underperformance of Chinese tech stocks compared with their U.S. peers.
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The fund’s portfolio management team began dumping exposure to the social media giant in light of the Cambridge Analytica scandal.
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Even momentum, which has made money in eight of the last 10 years, has plunged in 2019.
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The fund recorded its biggest inflow since inception a week before plans from the S&P and MSCI to group together internet and media stocks.
September 19
A disappointing earnings report from Tencent Holdings sparked a severe selloff in Chinese tech stocks on Wednesday. That’s sent products with significant exposure to the BAT trio — China’s equivalent of the U.S. FANG quartet — plummeting.
Many U.S. stock funds posted double-digit percentage gains, but international equities fared even better. Which were the biggest winners?
Seven U.S.-listed ETFs with at least $200 million in assets and a 13% cumulative weighting toward Baidu, Alibaba and Tencent are down double digits this year.
Meanwhile, funds with disproportionate exposure to the FANG stocks are up big in 2018 despite also getting knocked on Wednesday. The Invesco QQQ Trust Series 1 (QQQ), which tracks the Nasdaq 100, saw its year-to-date outperformance of the Invesco China Technology ETF (CQQQ) swell to nearly 40 percentage points.
Fund managers surveyed by Bank of America Merrill Lynch in August judged long positions in U.S. and Chinese tech behemoths to be the most crowded trade for the seventh month running. Tech industry leaders in each of the world’s two largest economies are considered structural growth stories, with near monopolistic characteristics in some cases.
But the price action in 2018 suggests the two groups shouldn’t be mentioned in the same breath.
