By Jim Trippon, editor The China Stock Digest

The China Stock Digest has typically favored large cap stocks but often that means buying into state-owned enterprises. Our readers have asked us for participation in the faster growing small cap arena, and we have been hesitant to do so because of the risks.

That’s why we want to spread the risk with exchange-traded funds and are recommending Claymore/AlphaShares China Small Cap ETF (NYSE: HAO) and the Claymore/AlphaShares China Real Estate ETF (NYSE: TAO).

Why we like the Claymore/AlphaShares China Small Cap ETF:

• Participation in the fastest growing sector

• Spreads the risk

• Proven performance

• Low costs

The Claymore/AlphaShares China Small Cap ETF has proven its mettle by delivering gains on small cap stocks during the worst of the global financial crisis.

The Claymore Small Cap has substantial volume and liquidity, trading about 200,000 shares a day, with an expense ratio of 0.70%. This small cap ETF operates much as other exchange-traded funds do.

For inclusion in the Index, AlphaShares defines small-capitalization companies as those companies with a maximum $1.5 billion market capitalization. We prefer this lowered risk method of participating in the fast-growing, dynamic sector of the Chinese economy.

Why we like Claymore/AlphaShares China Real Estate:

• The hottest growth investment arena

• Risk spread through multiple holdings

• Proven performance

• Low costs

Anyone who visits China or follows it knows that real estate prices are booming. We want to have a piece of that boom for our subscribers without taking the risks of direct property investment.

This real estate ETF allows us to take an ownership stake in major Asian financial houses which control and profit from the real estate market in China, Hong Kong and Singapore.

It holds some of the most respected property development and management businesses in Asia. Those who know the Orient will recognize many of the legendary names that have made billions on the development of Hong Kong and Singapore.

This ETF has solid momentum, up 85% during 2009 and we are buying on a dip. It has a low management fee of 0.65%. The fund’s components have an average P/E multiple of 20. Once again, we like this method managing and spreading risk while participating in a white hot section of the Asian economic sphere.

Learn more about this financial newsletter at The China Digest Digest.