Daily ETF Watch: New China Small-Cap

May 21, 2014

Deutsche Bank launches another China A-share ETF, this one focused on small-cap companies.

Deutsche Bank today is launching its db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (ASHS) to invest in the small-cap universe of mainland China securities. The fund will have an annual expense ratio of 0.82 percent, or $82 for each $10,000 invested.

A-shares are stocks of firms listed in either Shanghai or Shenzhen that are domiciled in mainland China—the final frontier of Chinese equities markets. The shifting focus in Chinese equities comes at a time when growth of the Chinese economy is slowing to single-digit rates compared with the more familiar double-digit growth in past years.

Deutsche Bank is no stranger to the A-shares market, having launched its first-to-market Deutsche Bank’s db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR | D-50) last November. ASHR now has nearly $150 million in assets under management.

Apart from the Deutsche’s pioneering A-share ETF, two other funds currently canvas the mainland China equities universe: the Market Vectors ChinaAMC A-Share ETF (PEK | F-47), which has $30 million in assets, and the KraneShares Bosera MSCI China A Share ETF (KBA), which has less than $6 million in assets.

Also, Market Vectors appears to be near launching a second China A-Shares ETF, this one focused on small- and medium-cap companies.

Non-Transparent Active ETF Update

BlackRock is teaming up with the BATS exchange to market nontransparent ETFs, a growing trend among mutual fund providers looking to get into the fast-growing ETF space.

According to a regulatory filing, BATS is seeking permission from regulators on behalf of BlackRock and a related BlackRock entity called the Spruce ETF Trust to launch actively managed ETFs that would disclose its portfolio holdings quarterly rather than daily. Those proposed ETFs, which are referred to in the filing as “Managed Portfolio Shares,” include the following:

  • Large Cap Fund
  • Large Cap Value Fund
  • Large Cap Growth Fund
  • Large/Mid Cap Fund
  • Large/Mid Cap Value Fund
  • Large/Mid Cap Growth Fund
  • Large Cap Long-Short Fund
  • Large Cap Value Long-Short Fund
  • Large Cap Growth Long-Short Fund
  • Large/Mid Cap Long-Short Fund
  • Large/Mid Cap Value Long-Short Fund
  • Large/Mid Cap Growth Long-Short Fund
  • Large Cap Growth Active Insights Fund

The filing comes at a time when ETF assets are rising to new records and mutual fund companies are looking to enter the world of ETFs in a variety of ways. For example, Vanguard has filed regulatory paperwork seeking permission to launch active ETFs, ranging from equity and fixed-income to muni-bond offerings.

Eaton Vance is also hoping that its brand of nontransparent ETFs, which it calls exchange-traded managed funds, or ETMFs, sees the light of day in the near future. While some mutual fund stalwarts like Eaton Vance are taking a direct route to the ETF space, other mutual fund firms, such as TCW, are partnering with ETF issuers such as State Street Global Advisors to launch active ETFs.

But whether they’re taking a direct or indirect route to the ETF market, mutual fund firms appear to now be recognizing they can’t ignore the steady growth of the industry. All told, some 1,584 ETFs currently manage about $1.770 trillion in assets.

Filing

FlexShares has put into registration a short-duration fixed-income ETF—the FlexShares Disciplined Duration MBS Index Fund—to give investors access to yield at a time of uncertainty in the interest-rate environment.

The Federal Reserve has signaled that it will raise rates sooner rather than later in 2015 even as it continues to taper its bond-buying program, leaving investors to reach for yields in all corners of the ETF market.

The FlexShares Disciplined Duration MBS Index Fund will track the Disciplined Duration MBS Index, which reflects the performance of a selection of investment-grade U.S. agency mortgage-backed pass-through securities backed by pools of mortgages and issued by the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the Government National Mortgage Association (Ginnie Mae), according to its regulatory filing.

The MBS securities have a weighted-average remaining maturity of at least one year.

 

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