When IndexIQ launched the IQ Hong Kong Small Cap ETF (HKK, quote) on May 18, it was hailed as the first ETF to target small-cap companies in the region. Six months later, it’s looking like a bad bet.
Granted, 2011 hasn’t been great for Hong Kong. The Hang Seng Index was down 16% between April and October, and the economy grew just 0.1% in Q3.
While annualized growth in 2011 is still expected to be 5%, Chief Executive Donald Tsang says growth may slow to 2% next year.
But what looks bad for big companies is traditionally a lot worse in the small caps.
HKK sold for $20.10 when it debuted. It closed at $14.64 on November 15. That’s a 27% drop.
HKK has improved over the last month, recovering from a low of $11.32 on October 4. But it has consistently lagged the large-cap MSCI Hong Kong Index Fund (EWK, quote) from iShares.
EWH performed better than HKK on every day except July 12, and is down 16% over the same six-month period.
HKK has spent most of its short life between $15 and $18, so now may be a good time to get in. But as EWH demonstrates, there are other deals out there — for example, HAO (quote), which gets direct exposure to China’s small-cap growth story.