The db x-trackers Harvest CSI300 Index Ucits ETF will replicate China’s CSI300 A Shares index, and will list on the London Stock Exchange and Deutsche Börse on 16 January.
Liquidity directly in China
The vehicle is the first Ucits-compliant, direct replication, China A-shares fund to be given such approval by a European regulator and follows the listing of a similar db-x vehicle in New York in November.
The CSI300 index tracks the performance of the 300 largest and most liquid A-shares stocks.
Ben Seager-Scott, senior research analyst at Bestinvest, said: “Over the long term, China is a very important place for investors to consider. Most exposure for retail clients will be through funds, and most won’t be to A-shares, so this will give investors more exposure to domestic China and the liberalisation of the Chinese market?”
Seager-Scott believes a physically-backed approach is appropriate for blue chip indices, but possibly less so for emerging markets, saying: “In times of crisis they can be prone to trading erratically. Liquidity can be an issue.”
Need for very low cost
James Calder, research director at City Asset Management, added: “I still believe active managers outperform over the longer term, although with China I can see there is an issue with regards to getting access. I prefer [ETFs] to be physically backed, but they have to be cheap as chips to make it work. They have their place but it’s a small place. The modest levels of growth we’re likely to see going forward means stock pickers should start performing.”
Meanwhile, Deutsche Bank was the only leading European ETF provider to net experience outflows in 2013. The firm saw investors pull a total of $4.6bn from its passive business, while rivals such as Amundi, UBS and Source all raised significant assets over the period.
Deutsche is hoping its move to physically replicated ETFs will help it return to solid inflows in 2014, and said the outflows stemmed largely from profit taking in its DAX ETF.
“Db-x trackers’ switch to physical ETFs is a route retail investors tend to prefer,” said Seager-Scott. “Whether DeAWM succeeds depends on its strategy,” he added. “They are late to the party on physical replication. At the moment they’re not particularly poised to take market share but they are a large group and they could contribute to what I call ‘competitive density’.
"You need a lot of players in the physical replication space and db-x trackers could be a player if it got aggressive on pricing.”