If you ever get a chance to go to Hong Kong, do not pass it up. I received my first opportunity in 1982 and immediately fell in love with the place. The business energy level is so high there that it is infectious. Perhaps that is one of the reasons that just two days ago, the Swiss-based International Institute for Management Development (IMD) ranked Hong Kong the World’s Most Competitive Economy.
The large companies of Hong Kong help make it a global powerhouse. However, its smaller companies, the unsung superheros of Hong Kong, might better exemplify its true competitiveness. With Wednesday’s (5/18/11) launch of IQ Hong Kong Small Cap ETF (HKK), U.S. investors can for the first time get easy access to this desirable segment of the world economy.
The underlying Index IQ Hong Kong Small Cap Index is a capitalization-weighted index that aims to capture the bottom 15% of the publicly available total market capitalization of companies located in Hong Kong. The 15-year old iShares MSCI Hong Kong (EWH) targets the largest 85%, which theoretically allows for zero overlap between them. Although the two ETFs may compete for the dollars investors decide to allocate to Hong Kong, they are actually complementary products.
HKK’s sector breakdown has Consumer Discretionary at 23.6%, Financials 18.9%, Materials 15.7%, Technology 10.9%, Consumer Staples 8.8%, Industrials 6.7%, Transportation 5.6%, Communications 2.7%, Energy 2.6%, Utilities 2.3%, and Health Care 2.2%. This is vastly different from EWH, which has a 61.9% allocation to Financials (EWH overview page).