DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.

Investors seeking greater exposure to artificial intelligence may need to look beyond broad emerging market products and make a deliberate allocation to China, according to Matthews Asia portfolio manager Andrew Mattock. His argument centers on what widely used funds leave out.

Mattock said general emerging market strategies may not give investors meaningful access to the Chinese companies connected to the AI opportunity. That gap could matter for investors who assume a broad fund already provides sufficient exposure across major Asian markets.

“Investors need to be aware when they buy an emerging market fund or when they buy a plain vanilla MSCI product… they’re not getting a lot of it,” Mattock told CNBC’s “ETF Edge” this week. His warning challenges the notion that a single broad product necessarily captures the full regional picture.

Mattock then identified the omission directly. “The big piece that you are missing… is the Chinese piece.”

The composition of the iShares MSCI Emerging Markets ETF illustrates his concern. Companies from South Korea and Taiwan account for almost half of the fund, leaving investors with a mix that may not deliver the China exposure Mattock considers important.

Simply buying a fund dedicated to China may not solve the issue, either. Mattock noted that the iShares MSCI China ETF lacks a focus on AI stocks, meaning investors may still need to inspect what they actually own rather than relying on a broad label.

Mattock manages the Matthews China Fund. According to the firm’s website, the fund invests at least 80% of its net assets in common and preferred stocks of companies located in China.

That concentrated mandate provides a more direct route into Chinese equities than a broad emerging market strategy. Its largest holdings include Tencent and Alibaba, two companies that also appear prominently in another China oriented investment product discussed in the report.

Performance, however, shows that direct access does not eliminate market risk. The Matthews China Fund was off 4% for the year as of Friday’s close, a reminder that targeted exposure can come with losses even when the underlying investment thesis attracts prominent supporters.

There are signs that attitudes toward investing in China have shifted. Billionaire hedge fund manager David Tepper, the founder of Appaloosa Management, said in September 2024 that he found the world’s second economy attractive again.

Tepper told CNBC that he had purchased more of “everything” related to China. His comments added a prominent voice to the case for renewed attention, though the fund performance figures show that enthusiasm has not translated into uniform gains.

Another approach involves using options around exchange traded funds tied to China. “I like the idea of utilizing options around some of those ETFs… like with KWEB [KraneShares CSI China Internet ETF],” a firm’s chief investment officer said in the same interview.

The appeal of that strategy, according to the chief investment officer, involves the ability to use calls while seeking protection. “Why do some of these hedge funds gravitate to these ETFs? Because they’re able to write a call and principally protect themselves,” he said.

“Give themselves some downside,” he added. The comments frame options as a tool that some hedge funds use when approaching China related funds, rather than treating an outright fund purchase as the only available method.

FactSet data shows that the KraneShares CSI China Internet ETF shares its two largest holdings with the Matthews China Fund. Tencent and Alibaba occupy the top two positions in both portfolios, creating overlap despite differences in the investment vehicles.

Yet their performances have diverged sharply in degree. As of Friday’s close, the KraneShares CSI China Internet ETF was down more than 27% for the year, compared with the Matthews China Fund’s 4% decline.

The figures reinforce Mattock’s broader point about being deliberate. Investors seeking AI exposure through China face meaningful differences among broad emerging market funds, China funds, actively managed portfolios, and internet focused products, even when some of those vehicles hold the same leading companies.

For investors chasing the AI theme, the choice is therefore not merely whether to own an emerging market fund. Mattock’s argument is that they must examine how much China exposure they are actually receiving and whether the underlying holdings provide the AI focus they seek.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.