Daily ETF Watch: New China A-Shares Fund

ETF newcomer files for an ETF targeting China’s most elusive market.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

ETF newcomer files for an ETF targeting China’s most elusive market.

Hong Kong-based CSOP Asset Management Ltd. has filed for a U.S.-listed ETF less than a month after its exemptive relief filing.

The CSOP FTSE China A50 ETF tracks an index that covers the 50 largest companies trading on the China A-Shares market, according to the initial prospectus, which also notes that the fund will use a representative sampling approach. That means that while the fund won’t hold the exact 50 securities in the index, it will hold securities that have similar fundamental, investment and liquidity characteristics, the filing said.

The A-shares market has been drawing a lot of investor interest lately because it was largely inaccessible to foreign investors, but China has been loosening those restrictions more and more. The filing says that CSOP is a renminbi qualified foreign institutional investor (RQFII), which means it can invest in the A-shares according to a quota granted by the Chinese regulatory authorities. CSOP’s website says it is the largest RQFII asset manager.

The firm also manages a Hong Kong-listed ETF by the same name as the ETF it just put into registration; it is traded in both Hong Kong dollars and renminbi. The fund was launched in August 2012.

It is unclear what will become of the CSOP Source FTSE China A50 ETF that was put into registration by Exchange Traded Concepts in January. The fund listed CSOP as its subadvisor and Source US LLC as its sponsor.

Established Competitors

The biggest China A-shares ETF on the market right now is the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR | D-52), which launched in November of last year and has more than $512 million in assets under management. It dwarfs the other China A-shares ETFs, which all have less than $10 million under management.

However, the CSOP fund—with its narrow, mega-cap focus—could find itself in a unique niche. The A-shares ETFs currently trading, including ASHR, are mostly broader in focus. ASHR, for example, covers 300 large-cap stocks.

The most similar fund is the PowerShares China A-Share Portfolio (CHNA | D-45). However, PowerShares does not yet appear to have its QFII/RQFII quota, and the fund is investing in SGX FTSE China A50 Index futures contracts to gain access to the A-shares market, according to the Invesco PowerShares website.

 

CHNA is also an actively managed fund, so should the fund receive its quota permit from the Chinese government, its exposure could shift. The fund’s prospectus allows it to invest in the futures on the FTSE A-shares benchmark, large-cap ETFs focused on the China A-shares market and actual A-shares. The prospectus also noted that the firm had applied for a QFII/RQFII quota.

Currently, CHNA has less than $2.5 million in assets under management. The low assets and the lack of the QFII/RQFII designation mean that there is an opening for CSOP in that space.

The CSOP filing did not include a ticker or an expense ratio, but it did indicate the fund would be listed on the NYSE Arca exchange.

SSgA Plans Active Min-Vol ETF
State Street Global Advisors outlined plans for an actively managed minimum-volatility ETF in a recent filing.

The State Street Global Managed Volatility Portfolio will seek to outperform the MSCI World Index by using a proprietary quantitative methodology to select stocks that the manager thinks will have high returns and low volatility, according to the prospectus.

The fund will generally invest in securities “economically tied” to at least three countries, and under normal circumstances, it will have at least 40 percent of its portfolio invested in non-U.S. securities from emerging as well as developed markets.

Perhaps the fund closest in its objective would be the iShares All Country World Minimum Volatility fund  (ACWV | A-48), which tracks a low-volatility global index from MSCI. The fund currently has $1.27 billion in assets under management and comes with an expense ratio of 0.34 percent.

The SSgA filing did not mention a ticker or expense ratio.

 

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.