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Fund Spy

China Funds Are More Complicated Than You May Think

China funds are a very diverse and volatile lot.

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China has seen its economy perform exceptionally well in the 2000s and currently is in the enviable position of having one of the largest and fastest-growing economies in the world. The nation's 1.3 billion people are buying a bigger--and broader--array of products and services than ever before, while many of its companies have become regional or even global leaders. Chinese stocks have posted huge gains during the global equity rally of the past 13 months, as they did from early 2006 through late 2007. 

Not surprisingly, given these auspicious conditions, the number of China funds and the amount of assets in such funds have grown significantly over the past decade. There now are 26 open-end China funds, as well as seven closed-end and 17 exchange-traded China funds. These 50 offerings have nearly $25 billion in assets in aggregate, and seven of them have asset bases of $1 billion or more.

But investors should be sure to do their homework before they even consider jumping on the China bandwagon. China funds are not nearly as straightforward--or as similar--in structure as their names imply. Their portfolios also can overlap considerably with those of a variety of other mutual funds.

William Samuel Rocco does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.