Daily ETF Watch: PEK Is Reborn

January 09, 2014

An existing China A-shares ETF changes its approach to invest in real stocks.

The Market Vectors China ETF (PEK | F-31), which formerly invested in Chinese securities via derivatives, is now taking a direct route to the Chinese market by owning actual stocks. The change imitates what Deutsche Bank is doing in its recently launched fund, the db X-trackers Harvest CSI 300 China A-Shares (ASHR).

ASHR and PEK are designed to give investors direct equity exposure to the world’s second-largest economy.

A-shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in China’s currency, the renminbi. The mainland market of securities that are listed in Shanghai and Shenzhen is considered to be the next great frontier of investing in China, superseding the first wave of Hong Kong-listed companies that have been accessible to Western investors for some time.

However, controls imposed by the Chinese government currently limit direct investments in A-shares, so only a limited pool of foreign investors have been approved as qualified foreign institutional investors by the China Securities Regulatory Commission.

Now, Market Vectors has partnered up with China Asset Management (Hong Kong) Limited, which has received its renminbi qualified foreign institutional investors (RQFII) quota of 1 billion RMB (US$163.8 million), allowing the $29.1 million PEK ETF to also have direct exposure to physical China A-shares.

Previously, PEK, which launched in October 2010, was marketed as the first fund of its kind to offer broad exposure to China A-shares via derivative securities using Credit Suisse as a partner. The use of derivatives exposes investors to the inherent risks of any equity investment, plus so-called counterparty risks associated with use of over-the-counter derivatives.

“Now that they’ve got that RQFII relationship, I wouldn’t be surprised to see a slew of Market Vectors China A-shares ETFs start to launch in the coming months,” said Dennis Hudachek, an IndexUniverse ETF analyst, in a recent analyst call.

Launches

State Street Global Advisors today is launching three actively managed equity ETFs in partnership with MFS that the firm is touting as beneficial to investors because of “a focus on managing downside risk” at a time when interest rates are rising and the Federal Reserve is pulling back on its economic stimulus.

The three new ETFs include:

The funds’ annual expense ratios are each 0.60 percent, or $60 for every $10,000 invested.

Filings

 

PowerShares has updated regulatory paperwork on its proposed PowerShares NYSE Century Portfolio to include associated fees for the fund, which is looking to further offset market uncertainty by taking a stab at some of the oldest major public companies in the U.S.

The fund’s index includes companies that have been incorporated in the U.S. for at least 100 years, have been listed on a major U.S. securities exchange for at least 10 years, and have a market capitalization of at least $1 billion.

PowerShares charges 0.50 percent, or $50 for every $10,000 invested, for the fund.

 

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