Billionaire David Tepper bought these 2 ETFs in Q2. Should you buy them too?

David Tepper was in sell mode in the second quarter of 2024. The billionaire cut holdings in eight of the top 10 holdings of his Appaloosa hedge fund.

However, Tepper didn’t just sell out in Q2. He bought more shares. The successful hedge fund manager also increased Appaloosa’s positions in two exchange-traded funds (ETFs).

iShares China Large-Cap ETF

Tepper bought 565,000 shares of the company iShares China Large-Cap ETF (NYSEMKT:FXI) last quarter, boosting Appaloosa’s stake in the ETF by 9%. The iShares fund now ranks 10th in the Appaloosa portfolio.

BlackRock launched this ETF on October 5, 2004. It tracks the FTSE China 50 index, which includes the shares of the 50 largest companies based in China. The fund’s main holding company, Alibabarepresents approximately 10% of its assets. Interestingly, Alibaba is also Appaloosa’s main holding, but Tepper sold the hedge fund’s 6.7% stake in the Chinese internet company in Q2.

The iShares China Large-Cap ETF has had negative total returns over the past few years, although it has grown somewhat in 2024. Why did Tepper decide to invest in it in Q2? Rating was perhaps a top consideration. The average price-to-earnings ratio for stocks in the ETF is just 11.5.

This is not a low-cost ETF. The annual expense ratio is 0.74%. The good news for Tepper, however, is that the iShares fund’s dividends more than offset expenses, with the 30-day SEC yield topping 2.7%.

KraneShares CSI China Internet ETF

You could say that Tepper was “a bull in the china shop” in T2. The other ETF he loaded during the quarter was KraneShares CSI China Internet ETF (NYSEMKT:KWEB). Tepper increased Appaloosa’s stake in the ETF by 29%.

This fund tracks the CSI Overseas China Internet Index, which features shares of China-based companies that focus primarily on Internet-related technology. Two of the KraneShares ETF’s top 10 holdings are also in Appaloosa’s top 10 — Alibaba and PDD Holdings.

Like the iShares China Large-Cap ETF, the KraneShares CSI China Internet ETF has not performed well in recent years. Since its inception on July 31, 2013, the fund has delivered an average annual return of less than 2%.

Another common denominator this ETF shares with the iShares fund is its relatively high costs. The KraneShares ETF’s annual expense ratio is 0.7%.

Should You Buy These ETFs Too?

These two ETFs are not great choices for most investors, in my view. There are inherent risks associated with buying Chinese stocks and ETFs. In particular, the Chinese government has cracked down on large Internet companies in recent years. Some believe that the negative effects will last a long time.

The story continues

However, more aggressive investors may find the attractive valuations of Chinese stocks too attractive to ignore. Should these investors buy the iShares China Large-Cap ETF and the KraneShares CSI China Internet ETF, as Tepper did in Q2? Again, I don’t think so.

The best approach for these investors may be to buy the specific Chinese stocks that are the strongest financially and have the best growth prospects. This would allow aggressive investors to take advantage of a potential rebound without paying the high expenses associated with the two ETFs.

Which stocks are the best picks with this strategy? I think there’s a good case for Alibaba — even if it was among the many stocks Tepper sold in Q2.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

Billionaire David Tepper bought these 2 ETFs in Q2. Should you buy them too? was originally published by The Motley Fool