Red-chip exposure through db x FTSE China25

Or rather, red-chip ones. The index (FTSE China 25) includes the largest 25 'China affiliated corporations' listed on the Hong Kong Stock Exchange, ranked by total market capitalisation, and that are sufficiently liquid to be traded. Index constituents are capped at 10 per cent of the total index.

With a total expense ratio (TER) of 0.6 per cent this is one of the most cost-effective ways to access China's largest players.

Although the underlying index is small, like most db x-trackers products this fund is a synthetically constructed ETF. That means it does not hold the actual shares but replicates the index using swaps, exposing the investor to derivative counterparty risk. However, this risk is capped at 10 per cent of assets and db x is also committed to collateralising this counterparty exposure.

There is a notable tracking difference between the ETF and the underlying index, which the provider attributes to the impact of annual fund management fees.

The ETF has an attractive dividend yield of 3.2 per cent, although this is a capitalising product, so dividends will be reinvested into the fund - you'll never get a dividend cheque.

As with all funds exposed to emerging markets, the ETF is likely to be subject to volatility and, given that this is a highly concentrated vehicle, it is not appropriate for widows and orphans or the risk averse.

Source: db x-trackers

Performance figures as at 30 December 2011

Top 10 index constituents (as at 30 December 2011)

Sector Breakdown