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How to hitch on to a rising star

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This sort of volatility suggests that it's best to hold only a small portion of your portfolio in China, say 5 per cent for most people and 10 per cent for true believers. If you do buy a China-focused investment, make sure you're not doubling up on exposure you already have through an emerging market or Far East mutual fund.

China's economy has been growing at such a rate that there have been concerns it will overheat and topple over into recession. The Chinese government has been working to engineer the proverbial soft landing, but risks remain.

Given this uncertainty amid all the celebration of China's economic achievement, is this country truly a must-have in your portfolio?

"Absolutely," Prof. Kirzner said. "I've been saying that for years."

Investing in China

Here are some options for profiting from the spectacular growth of the Chinese economy:

IShares FTSE/Xinhua China 25 Index Fund (FXI-NYSE)

Description: An exchange-traded fund listed on the New York Stock Exchange that tracks the FTSE/Xinhua China 25-stock index, which comprises some of the largest, most liquid Chinese companies.

How to buy: Through any broker - commissions can be as little as $25 (U.S.) at an on-line broker and you can buy any quantity you like.

Cost to own: The management expense ratio is 0.74 per cent.

Returns: The fund is new, but the index has a one-year return of 29 per cent and an annualized five-year return of 11.5 per cent (to Sept. 30).

Risk level: Very high

Alternatives: There are ETFs tracking the Honk Kong and Taiwan markets listed on the American Stock Exchange.

AGF China Focus Class and Talvest China Plus funds

Description: These mutual funds have the longest track record among China-focuses specialty funds. They mainly hold shares of Chinese companies listed in Hong Kong and Taiwan.

How to buy: Through financial advisers or on-line brokers. Commissions may apply.

Cost to own: The MER on the AGF fund is 3.5 per cent, while the Talvest fund's MER is 3.2 per cent.

Returns: AGF has a one-hear return of 17.6 per cent and a five-year compound average annual return of 11 per cent; Talvest China Plus made 8 per cent in the past year and 7.6 per cent in the past five years.

Risk level: Very high.

Alternatives: Several other fund companies have new China funds, including Bank of Montreal, Dynamic, Excel, Manulife and Templeton.

Mackenzie Universal Canadian Resource Fund

Description: A consistently strong resource fund with an emphasis on oil and gas stocks.

How to buy: Through financial adviser and on-line brokers. Commissions may apply.

Cost to own: The MER is 2.55 per cent.

Returns: One-year return is 37 per cent; five-year annual return is 19.2 per cent.

Risk level: High.

Alternatives: There are roughly 60 natural resource funds available.

China Fund (CHN-NYSE)

Description: A closed-end fund that trades on the NYSE.

How to buy: Through any broker - commissions can be as little as $25 (U.S.) at an on-line broker and you can buy any quantity you like.

Cost to own: The MER is about 1.5 per cent.

Returns: One-year loss is 7.8 per cent; five-year cumulative return is 21.4 per cent.

Risk level: Very high - this fund trades at a hefty premium to its new asset value right now.

Alternatives: There are at least four other closed-end China-focused funds listed on the NYSE.

SOURCE: THOMSON DATASTREAM

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