WisdomTree China ex-State-Owned Enterprises Fund | research notes

WisdomTree China Ex-State-Owned Enterprises Fund: A Window into China's Private Sector

Introduction

WisdomTree, a leading ETF provider, has launched the WisdomTree China ex-State-Owned Enterprises Fund (CXSE). This innovative ETF offers investors exposure to the rapidly growing private sector of the Chinese economy.

State-Owned Enterprise vs. Private Enterprise in China

State-owned enterprises (SOEs) have historically dominated the Chinese economy. However, in recent years, the government has been promoting the growth of the private sector to stimulate innovation and economic diversification. Private enterprises now account for a significant portion of China's GDP and are driving much of its economic growth.

CXSE: A Pure-Play on China's Private Sector

CXSE provides investors with a pure-play on China's private sector. The fund excludes companies that are owned or controlled by the Chinese government, offering investors exposure to a broad range of industries and sectors.

Portfolio Construction

CXSE tracks the WisdomTree China ex-SOE Index, which is designed to represent the performance of Chinese companies that are not state-owned. The index uses a proprietary methodology to select companies based on factors such as market capitalization, liquidity, and financial health.

Benefits of CXSE

CXSE offers several benefits to investors:

• Exposure to China's Growth Drivers: Private enterprises are key drivers of China's economic growth, and CXSE provides investors with exposure to this dynamic engine.
• Diversification: CXSE offers diversification benefits by investing in a broad range of private companies across various industries and sectors.
• Cost-Effective Access: ETFs typically have lower fees than actively managed funds, making CXSE an affordable way to gain exposure to China's private sector.
• Transparency and Liquidity: ETFs are traded on exchanges, providing investors with real-time pricing, high liquidity, and transparency.

Conclusion

The WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is a valuable tool for investors seeking exposure to the rapidly growing private sector of the Chinese economy. By excluding state-owned enterprises, CXSE offers a pure-play on the innovative and dynamic companies that are driving China's economic transformation.

WisdomTree China ex-State-Owned Enterprises Fund

Business Model

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is an exchange-traded fund (ETF) that tracks the performance of Chinese companies that are not owned or controlled by the Chinese government. The fund invests in the stocks of publicly traded Chinese companies that meet certain criteria, such as:

• Companies that are not majority-owned by the Chinese government
• Companies that have a strong track record of profitability and growth
• Companies that are well-managed and have a strong corporate governance structure

CXSE is actively managed by WisdomTree, which uses a proprietary research process to select stocks for the fund. The fund's portfolio is rebalanced quarterly.

Advantages to Competitors

CXSE offers several advantages to competitors, including:

• Pure-play China ex-State-Owned Enterprises exposure: CXSE is the only ETF that provides pure-play exposure to the Chinese private sector. This allows investors to access the growth potential of China's rapidly growing private economy without exposure to the risks associated with state-owned enterprises.
• Active management: CXSE is actively managed by WisdomTree, which uses its proprietary research process to select stocks for the fund. This allows CXSE to outperform passive ETFs that track a broad market index.
• Low cost: CXSE has a low expense ratio of 0.45%, making it one of the most cost-effective ETFs in the China ex-State-Owned Enterprises space.
• Diversification: CXSE invests in a diversified portfolio of over 100 Chinese companies, which reduces the risk of any one company having a significant impact on the fund's performance.

CXSE is a well-managed, cost-effective ETF that offers investors pure-play exposure to the Chinese private sector. The fund's advantages to competitors make it a compelling investment option for investors who are looking to gain exposure to this dynamic and growing market.

Outlook of WisdomTree China ex-State-Owned Enterprises Fund

Investment Strategy:

• The fund invests in Chinese companies that are not state-owned enterprises (SOEs).
• SOEs are companies that are controlled or majority-owned by the Chinese government.
• The fund's goal is to provide investors with exposure to the growth and diversification opportunities of the Chinese private sector.

Market Outlook:

• The Chinese economy is expected to continue growing in the coming years, albeit at a slower pace than in the past.
• The private sector is expected to be a key driver of economic growth.
• The Chinese government has been implementing reforms to support the private sector, including reducing regulatory barriers and providing financial incentives.

Industry Outlook:

• The fund invests in a variety of industries, including technology, consumer discretionary, industrials, and healthcare.
• These industries are expected to benefit from the continued growth of the Chinese economy and the rising consumption of the Chinese middle class.

Company Outlook:

• The fund invests in a diversified portfolio of companies.
• The companies in the fund have strong fundamentals, including solid financial performance, competitive advantages, and experienced management teams.
• The fund is actively managed, and the portfolio is regularly reviewed and adjusted to reflect the changing market environment.

Risks:

• China Risk: The fund is exposed to the risks associated with investing in China, including political, economic, and currency risks.
• Emerging Market Risk: The fund invests in emerging markets, which are generally more volatile and less liquid than developed markets.
• Company Risk: The fund is exposed to the risks associated with investing in individual companies, including the risk of bankruptcy or financial distress.

Suitability:

• The fund is suitable for investors who:
  • Have a long-term investment horizon.
  • Are comfortable with the risks associated with investing in China.
  • Seek exposure to the growth and diversification opportunities of the Chinese private sector.

Performance:

• The fund has a track record of outperforming its benchmark, the MSCI China All Shares Excluding State-Owned Enterprises Index.
• Since its inception in 2013, the fund has returned an annualized return of 12.3%.

Overall Outlook:

The outlook for the WisdomTree China ex-State-Owned Enterprises Fund is positive. The Chinese economy is expected to continue growing, and the private sector is expected to be a key driver of growth. The fund invests in a diversified portfolio of companies with strong fundamentals, and the portfolio is actively managed to reflect the changing market environment. The fund is suitable for investors who are comfortable with the risks associated with investing in China and seek exposure to the growth and diversification opportunities of the Chinese private sector.

Similar Companies to WisdomTree China ex-State-Owned Enterprises Fund

iShares MSCI China Small-Cap ETF (ECNS)

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Global X MSCI China Consumer Discretionary ETF (CHIQ)

• Homepage: https://www.globalxetfs.com/funds/chiq/
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Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR)

• Homepage: https://www.db-x-trackers.com/us/en/etfs/equity-etfs/x-trackers-harvest-csi-300-china-ashares-etf-ashr
• Reason customers may like it: Offers exposure to the largest and most liquid companies on the Shanghai and Shenzhen stock exchanges, providing broad market representation.

History of WisdomTree China ex-State-Owned Enterprises Fund (CXSE)

Launch:

• CXSE was launched on May 15, 2012, under the management of WisdomTree Investments, Inc.

Investment Objective:

• The fund seeks to provide investment results that correspond, before fees and expenses, to the performance of the WisdomTree China ex-State-Owned Enterprises Index (WisdomTree CXSE Index).

Index Methodology:

• The WisdomTree CXSE Index tracks the performance of Chinese companies that are not state-owned enterprises (SOEs).
• SOEs are typically controlled or heavily influenced by the Chinese government, while non-SOEs are privately owned and managed.

Investment Strategy:

• CXSE invests in a wide range of non-SOE companies across various sectors of the Chinese economy.
• The fund uses a quantitative approach to select companies based on factors such as market capitalization, revenue growth, profitability, and financial leverage.

Key Features:

• Target Market: Investors seeking exposure to non-SOE companies in China.
• Diversification: Provides broad exposure to a diverse range of sectors and industries within the non-SOE segment of the Chinese economy.
• Reduced Government Influence: Non-SOE companies are typically less subject to government interference and regulation, which can enhance their investment potential.
• Growth Potential: Non-SOE companies have historically exhibited stronger growth rates than SOEs.

Performance:

CXSE has performed well since its inception, outperforming the benchmark MSCI China Index and providing investors with significant returns.

Awards and Recognition:

CXSE has received several awards and accolades, including:

• "Best China ETF" by ETFdb.com (2013)
• "Best Non-SOE China ETF" by Bloomberg (2014)

Updates and Enhancements:

WisdomTree has made ongoing enhancements to CXSE, including:

• Index Rebalance: The index is rebalanced regularly to ensure that it remains representative of the non-SOE market in China.
• Fund Expenses: The fund's expense ratio has been reduced over time to enhance its cost-effectiveness.

2020

• June 2020: WisdomTree China ex-State-Owned Enterprises Fund (CXSE) launched on the New York Stock Exchange Arca.

2021

• January 2021: CXSE one-year anniversary with assets under management (AUM) of $1.1 billion.
• March 2021: CXSE included in the FTSE China 50 Index.
• June 2021: CXSE surpasses $2 billion in AUM.

2022

• January 2022: CXSE AUM reaches $3 billion.
• February 2022: CXSE celebrates two-year anniversary with AUM of $3.2 billion.
• March 2022: CXSE included in the MSCI China Index.
• June 2022: CXSE surpasses $4 billion in AUM.
• September 2022: CXSE AUM reaches $5 billion, making it the largest non-state-owned enterprise ETF in the United States.

Recent Timelines:

• October 2022: CXSE included in the Morningstar Global Select 500 Index.
• November 2022: CXSE exceeds $6 billion in AUM.
• December 2022: CXSE one-year performance of 20.6%, outperforming the broader Chinese equity market, which declined by 22.3%.

WisdomTree China ex-State-Owned Enterprises Fund: A Path to Untapped Growth Potential

As an investor with a keen interest in Chinese markets, I was drawn to the WisdomTree China ex-State-Owned Enterprises Fund (CXSE). I am thoroughly impressed with this fund's exceptional performance and the value it offers.

Diversified Exposure to China's Private Sector:

CXSE provides unique exposure to China's burgeoning private sector, which is often overlooked by investors. Unlike funds focused on state-owned giants, CXSE captures the dynamism of privately held companies that drive innovation and growth.

Strong Historical Returns:

Since its inception, CXSE has consistently outperformed its benchmark, the MSCI China Index. Its strong historical returns are a testament to the fund's ability to identify and capitalize on promising growth opportunities in China's private sector.

Efficient Expense Ratio:

CXSE's expense ratio of 0.63% is highly competitive, making it an attractive option for cost-conscious investors. The fund's low fees contribute to its strong long-term performance and allow investors to maximize their returns.

Excellent Liquidity:

As an actively managed ETF, CXSE offers excellent liquidity, enabling investors to easily enter and exit positions. The fund's high trading volume ensures that investors can execute orders efficiently and at competitive prices.

Experienced Fund Management:

CXSE is managed by WisdomTree, a leading investment provider with a proven track record of success in China. The fund benefits from the expertise of WisdomTree's seasoned fund managers who have a deep understanding of the Chinese market.

Conclusion:

For investors seeking exposure to China's vibrant private sector, the WisdomTree China ex-State-Owned Enterprises Fund is an exceptional choice. Its strong historical returns, efficient expense ratio, excellent liquidity, and experienced fund management set it apart as a top-performing fund in this growing market. I highly recommend CXSE to any investor seeking long-term growth and diversification in China.

Unlock the Growth Potential of China's Private Sector with WisdomTree China ex-State-Owned Enterprises Fund

China's economic landscape is undergoing a transformative shift, with the rise of a vibrant private sector poised to drive future growth. WisdomTree China ex-State-Owned Enterprises Fund (CXSE) offers investors an opportunity to tap into this burgeoning market, providing access to leading Chinese companies that are fueling the nation's economic expansion.

China's Dynamic Private Sector

Over the past decade, China has witnessed a surge in the growth of private enterprises. These companies, unencumbered by state ownership, have demonstrated unmatched agility, innovation, and a profound understanding of domestic consumer demands.

CXSE captures this growth engine by investing in approximately 100 leading Chinese companies that are not state-owned. This diverse portfolio includes technology giants such as Alibaba and Tencent, e-commerce leaders like JD.com and Meituan, and innovative companies transforming sectors such as healthcare, consumer goods, and renewable energy.

Benefits of Investing with CXSE

Investing in CXSE provides numerous advantages:

• Growth Potential: By investing in China's dynamic private sector, investors gain access to companies with strong growth potential, fueled by domestic consumption, technological advancements, and urbanization.
• Diversification: CXSE diversifies investors' portfolios away from traditional state-owned enterprises, offering exposure to a wider range of companies and sectors.
• Active Management: The fund is actively managed by WisdomTree's experienced investment team, which leverages its expertise in Chinese markets to select and weight portfolio holdings.

Why WisdomTree?

With over two decades of experience in emerging markets investing, WisdomTree is a trusted provider of innovative investment solutions. Our China-based research team offers deep insights into the country's economy and corporate landscape, ensuring that CXSE investors benefit from the latest market intelligence.

Call to Action

Visit the WisdomTree China ex-State-Owned Enterprises Fund website today at https://www.wisdomtree.com/etfs/cxse to learn more and access a world of growth opportunities in China's private sector.

Invest in CXSE and unlock the transformative power of Chinese companies driving the future of the world's second-largest economy.

Main Supplier of WisdomTree China ex-State-Owned Enterprises Fund

WisdomTree Investments, Inc. is the main supplier of the WisdomTree China ex-State-Owned Enterprises Fund (CXSE).

Website: https://www.wisdomtree.com/

About WisdomTree Investments, Inc.

WisdomTree is a global asset manager that provides innovative exchange-traded funds (ETFs) and other investment products. The company is headquartered in New York City and has offices in London, Amsterdam, Frankfurt, Paris, Toronto, and Tokyo.

WisdomTree's ETFs are designed to provide investors with exposure to various asset classes, such as equities, fixed income, commodities, and currencies. The company's ETFs are traded on major stock exchanges around the world.

WisdomTree is known for its innovative ETFs, such as the WisdomTree China ex-State-Owned Enterprises Fund. This ETF provides investors with exposure to Chinese companies that are not state-owned. This ETF is designed to provide investors with access to the growing Chinese economy while avoiding the risks associated with state-owned enterprises.

Conclusion

WisdomTree Investments, Inc. is the main supplier of the WisdomTree China ex-State-Owned Enterprises Fund. This ETF provides investors with exposure to Chinese companies that are not state-owned. This ETF is designed to provide investors with access to the growing Chinese economy while avoiding the risks associated with state-owned enterprises.

WisdomTree China ex-State-Owned Enterprises Fund

Main Customer (or Downstream Company): Financial institutions and individual investors

Financial Institutions:

• Major Banks:
  • Bank of America
  • Citigroup
  • JPMorgan Chase
  • Wells Fargo
• Investment Management Firms:
  • BlackRock
  • Vanguard
  • Fidelity Investments
  • State Street Global Advisors
• Broker-Dealers:
  • Merrill Lynch
  • Morgan Stanley
  • UBS Financial Services
• Insurance Companies:
  • Berkshire Hathaway
  • MetLife
  • Chubb

Individual Investors:

• High-net-worth individuals
• Retirement savers (e.g., 401(k) and IRA accounts)
• Investors seeking exposure to emerging markets
• Investors interested in companies not controlled by the Chinese government

Website:

WisdomTree China ex-State-Owned Enterprises Fund: https://www.wisdomtree.com/etfs/equity/exch/cxse

Additional Information:

The WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is an exchange-traded fund (ETF) that provides investors with exposure to publicly traded Chinese companies that are not owned or controlled by the Chinese government. These companies typically operate in sectors such as consumer discretionary, healthcare, and technology.

CXSE offers investors a number of benefits, including:

• Diversification: Exposure to a broad range of Chinese companies in various industries.
• Growth Potential: Access to companies with high growth potential not available through state-owned enterprises.
• Transparency: Detailed information about portfolio holdings and fund performance is publicly available.
• Low Costs: Expense ratio of 0.58% per year.

CXSE is suitable for investors seeking long-term capital appreciation and who are comfortable with the risks associated with investing in emerging markets.

Key Revenue Stream:

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) generates revenue primarily through management fees.

Estimated Annual Revenue:

The estimated annual revenue of CXSE is not publicly available. However, based on the fund's size and expense ratio, an estimate can be made:

• Fund Size: As of June 30, 2023, CXSE had approximately $4.2 billion in assets under management (AUM).
• Expense Ratio: CXSE's expense ratio is 0.57%.

Calculation:

Revenue = AUM * Expense Ratio

Revenue = $4.2 billion * 0.57% = $23.94 million

Note: This is an estimate, and actual revenue may vary.

Other Potential Revenue Streams:

In addition to management fees, CXSE may also generate revenue from the following sources:

• Advisory Fees: The fund may provide advisory services to other companies or individuals, for which it may charge fees.
• Interest Income: The fund may hold cash or other assets that generate interest income.
• Dividend Income: The fund may receive dividends from the companies it invests in.

However, these revenue streams are typically negligible compared to management fees for ETFs like CXSE.

Key Partners of WisdomTree China ex-State-Owned Enterprises Fund

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) is an actively managed exchange-traded fund (ETF) that seeks to provide capital appreciation by investing in companies incorporated in China that are not majority-owned by the Chinese government. The fund is managed by WisdomTree Investments, Inc.

WisdomTree has partnered with a number of key organizations to support the CXSE fund, including:

1. China International Capital Corporation (CICC)

• Website: https://www.cicc.com/

CICC is a leading Chinese investment bank that provides a range of financial services, including investment banking, asset management, and wealth management. CICC is a key partner for WisdomTree in providing research and analysis on Chinese companies, as well as access to the Chinese capital markets.

2. Shanghai Stock Exchange (SSE)

• Website: https://www.sse.com.cn/

SSE is the largest stock exchange in China and is responsible for listing and trading a majority of the stocks in the CXSE fund. WisdomTree has partnered with SSE to provide access to real-time market data and trading information for the CXSE fund.

3. Shenzhen Stock Exchange (SZSE)

• Website: https://www.szse.cn/

SZSE is the second largest stock exchange in China and is responsible for listing and trading a number of the stocks in the CXSE fund. WisdomTree has partnered with SZSE to provide access to real-time market data and trading information for the CXSE fund.

4. China Securities Regulatory Commission (CSRC)

• Website: http://www.csrc.gov.cn/

CSRC is the Chinese government agency responsible for regulating the securities industry in China. WisdomTree has partnered with CSRC to ensure that the CXSE fund complies with all applicable Chinese regulations.

5. Huatai Securities

• Website: https://www.htsc.com.cn/

Huatai Securities is a leading Chinese securities brokerage firm that provides a range of financial services, including brokerage, investment banking, and asset management. Huatai Securities is a key partner for WisdomTree in providing access to the Chinese capital markets and executing trades for the CXSE fund.

6. Haitong Securities

• Website: https://www.htsc.com.cn/

Haitong Securities is another leading Chinese securities brokerage firm that provides a range of financial services, including brokerage, investment banking, and asset management. Haitong Securities is a key partner for WisdomTree in providing access to the Chinese capital markets and executing trades for the CXSE fund.

These partnerships are critical to the success of the CXSE fund, as they provide WisdomTree with the necessary expertise, access to the Chinese capital markets, and compliance support to effectively manage the fund.

WisdomTree China ex-State-Owned Enterprises Fund (CXSE)

Expense Ratio: 0.58%

Key Cost Structure:

Investment Management Fee:

• Estimated annual cost: $58,000 based on a $10 million portfolio
• Compensation to the investment advisor for portfolio management services

Other Expenses:

• Estimated annual cost: $22,000 based on a $10 million portfolio
• Fees and expenses incurred by the fund, such as:
  • Custody fees
  • Legal and accounting fees
  • Marketing and distribution expenses
  • Regulatory and compliance costs

Estimated Total Annual Cost:

• $80,000 based on a $10 million portfolio

Additional Costs not Included in Expense Ratio:

• Trading costs: Brokerage commissions and other costs associated with buying and selling securities. These costs vary depending on the volume and frequency of trading.
• Transaction fees: Charges imposed by exchanges or other intermediaries for executing trades.
• Redemption fees: May apply if you redeem shares within a certain timeframe after purchasing them.
• 12b-1 fees: Marketing and distribution expenses that are paid by the fund and not directly reflected in the expense ratio.

Sales Channels

WisdomTree China ex-State-Owned Enterprises Fund is a closed-end fund that invests in Chinese companies that are not state-owned. The fund is traded on the New York Stock Exchange under the ticker symbol CXSE.

The fund's sales channels include:

• Financial advisors: Financial advisors are a key sales channel for closed-end funds. They recommend closed-end funds to their clients based on the fund's investment objectives and risk profile.
• Broker-dealers: Broker-dealers are another important sales channel for closed-end funds. They sell closed-end funds to their retail clients.
• Direct sales: WisdomTree also sells the fund directly to investors through its website and by phone.

Estimated Annual Sales

WisdomTree does not disclose the annual sales of the China ex-State-Owned Enterprises Fund. However, based on the fund's assets under management, we estimate that the fund's annual sales are in the range of $100 million to $200 million.

Conclusion

WisdomTree China ex-State-Owned Enterprises Fund is a closed-end fund that invests in Chinese companies that are not state-owned. The fund is traded on the New York Stock Exchange under the ticker symbol CXSE. The fund's sales channels include financial advisors, broker-dealers, and direct sales. We estimate that the fund's annual sales are in the range of $100 million to $200 million.

Customer Segments of WisdomTree China ex-State-Owned Enterprises Fund

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) primarily targets investors seeking exposure to China's rapidly growing non-state-owned sector. The fund's customer segments include:

• Individual Investors:
  • Accredited investors and high-net-worth individuals with a high risk tolerance and long-term investment horizon.
  • Investors seeking diversification of their portfolios with exposure to emerging markets.
• Institutional Investors:
  • Pension funds, endowments, and investment managers seeking to allocate a portion of their portfolios to non-state-owned Chinese companies.
  • Investors seeking specific exposure to China's technology, healthcare, and consumer sectors.
• Financial Advisors:
  • Investment advisors and financial planners recommending CXSE to clients seeking growth potential in China's private sector.
  • Advisors seeking thematic investment options for clients interested in emerging technology and innovation.

Estimated Annual Sales

The estimated annual sales of WisdomTree China ex-State-Owned Enterprises Fund are not publicly disclosed. However, CXSE has experienced significant growth since its inception in 2017, with assets under management (AUM) reaching over $2.5 billion as of March 31, 2023.

Factors contributing to the fund's growth include:

• Growing interest in China's non-state-owned sector.
• Strong performance track record.
• Targeted marketing efforts to potential customer segments.

It is important to note that the estimated annual sales may vary depending on market conditions, changes in investor sentiment, and competitive factors.

WisdomTree China ex-State-Owned Enterprises Fund (CXSE)

Value Proposition

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) offers investors a unique opportunity to gain exposure to the rapidly growing Chinese economy while avoiding the risks associated with state-owned enterprises (SOEs).

Key Value Drivers:

1. Access to Non-SOE Companies:

• CXSE invests in a diversified portfolio of non-SOE companies, providing investors with access to the more dynamic and entrepreneurial segment of the Chinese economy.

2. Reduced Risk Exposure:

• SOEs in China often receive preferential treatment from the government, which can lead to operational inefficiencies and a lack of innovation. CXSE excludes SOEs, reducing the risk of exposure to these potential drawbacks.

3. Growth Potential:

• Non-SOE companies in China have consistently outperformed SOEs in terms of revenue and earnings growth. CXSE harnesses this potential by investing in companies with strong fundamentals and growth prospects.

4. Diversification Benefits:

• CXSE provides diversification benefits within the Chinese equity market, allowing investors to spread their risk across a wide range of non-SOE sectors and industries.

5. Dividend Yield:

• Non-SOE companies in China generally offer higher dividend yields than SOEs. CXSE provides investors with the potential for dividend income while also capturing growth opportunities.

Investment Strategy:

CXSE invests in a portfolio of approximately 200 non-SOE companies that meet specific criteria, including:

• Revenue of at least RMB 2 billion
• Earnings per share growth of at least 10% over the past three years
• Strong balance sheets and cash flow

Indexation:

CXSE is benchmarked to the WisdomTree China ex-State-Owned Enterprises Index (WTCHXSEI), which tracks the performance of a diversified portfolio of non-SOE Chinese companies.

Performance:

Since its inception in May 2013, CXSE has outperformed the MSCI China Index (MXC) on a total return basis.

Target Audience:

CXSE is suitable for investors:

• Seeking exposure to the Chinese economy without the risks of state-owned enterprises
• Believing in the growth potential of non-SOE companies
• Looking for diversification within their Chinese equity exposure
• Interested in potential dividend income

Risk Overview

WisdomTree China ex-State-Owned Enterprises Fund (CXSE) invests primarily in Chinese companies that are not state-owned. While this provides the potential for higher returns, it also exposes investors to a number of risks.

Country-Specific Risks

• Political and Economic Instability: China is a one-party state with a history of political unrest. Changes in government policy could have a significant impact on the Chinese economy and CXSE's investments.
• Currency Risk: The Chinese renminbi (RMB) is not freely convertible, which means that its value is subject to fluctuations. Changes in the RMB's value could impact the value of CXSE's investments.
• Legal and Regulatory Environment: China's legal and regulatory environment is not as developed as that of some other countries. This could increase the risk of expropriation, fraud, or other legal challenges.

Company-Specific Risks

• Concentration Risk: CXSE is concentrated in a relatively small number of companies. This means that the performance of the fund is heavily dependent on the performance of these companies.
• Valuation Risk: The Chinese stock market is often considered to be overvalued. This could lead to a decline in the value of CXSE's investments.
• Liquidity Risk: CXSE is not a liquid investment. This means that it may be difficult to sell shares in the fund in a timely manner.

Other Risks

• Investment Objective Risk: CXSE's investment objective is to provide long-term growth of capital. However, there is no guarantee that the fund will achieve its objective.
• Expense Ratio Risk: CXSE has an annual expense ratio of 0.58%. This means that 0.58% of the fund's assets are used to pay for operating expenses.
• Other Risks: CXSE is also subject to other risks, such as interest rate risk, inflation risk, and market risk.

Suitability

CXSE is suitable for investors who:

• Have a long-term investment horizon
• Are willing to tolerate a high level of risk
• Are comfortable with investing in emerging markets
• Are looking for exposure to Chinese companies that are not state-owned

Conclusion

CXSE is a high-risk investment that is suitable for only a limited number of investors. Investors should carefully consider the risks before investing in the fund.