Chinese index ETFs: swaps vs full replication

Investing / Portfolios
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By chance I stumbled upon two ETF replicating the CSI 300 (biggest Chinese companies). Their returns were very different and I wondered why. So I searched for a bit and wanted to share.

The two ETFs are:

XCHA is swap-based and RQFI does full replication. But their cumulative total returns over the past 5 years where very different:

  • XCHA: 59.72%
  • RQFI: 32.19%

I found my answer in this article by Invesco: Does swap-based replication offer an advantage? Long-short positions in the Chinese market are very popular, but someone has to to be the counterparty for the shorts. This risk is offloaded into the ETF by swaps. This compensation was nearly 4% per year, incredible.

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As in “incredibly low”, right?

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I don’t feel well equipped to judge if the risk is compensated adequately. But I think, the compensation is large in comparison to other stock indices.