This Chinese-Focused ETF Has Taken a Beating in Recent Years but Could Have a Lot of Upside

Chinese stocks haven’t been doing well in recent years due to tensions between China and the U.S. But in the long run, they could present investors with some incredible growth opportunities given the potential in the Chinese market.

A good way to invest in top Chinese stocks is through an exchange-traded fund (ETF), such as the iShares China Large-Cap ETF (NYSE Arca:FXI). This fund offers a diversified portfolio, focusing on the largest and most influential companies within the Chinese market. The ETF follows the FTSE China 50 Index, providing targeted access to 50 of the largest Chinese stocks in terms of market capitalization. These companies span a range of industries, from financials and technology to energy and consumer goods, reflecting the broad spectrum of China's economic sectors.

By focusing on large-cap companies, the ETF taps into firms with established business models, significant market shares, and the potential for steady growth. These attributes are particularly appealing for investors seeking exposure to China's market who don’t want to take on significant risk.

Some of the top stocks in the fund include Alibaba Group Holdings (NYSE:BABA), Tencent Holdings (OTC:TCEHY), and Baidu (NASDAQ:BIDU). The top 10 stocks account for 57% of the fund’s total holdings. More than 31% of the stocks are in the consumer discretionary sector, with another 30% being in financials, and communication stocks make up 19%.

Last year, shares of FXI fell by 15%. And over the past five years, the fund has lost half of its value. This is a bit of a contrarian pick for investors who are bullish on Chinese stocks because as much as the fund has struggled in recent years, it could be overdue for a recovery.