The ETF will track the MSCI China Asia index, an index offering one of the biggest diversification of over 450 stocks.
Regulatory approval is still pending but expected “any day”, according to Matt Johnson, head of distribution EMEA at ETF Securities. Once authorities have given the green light, the ETF will be domiciled in Ireland and listed on the stock market of the LSE and the Frankfurt Bourse.
White label strategy
Since beginning of the year investors have been privy to a flurry of activity of ETF products targeting China’s market. The latest creation by ETF Securities offers investors seeking Chinese shares a new set-up, in a similar strategy recently unveiled by rival players.
Back in September, ETF Securities announced the launch of a sub-business named Canvas introducing third-party investors to white labelling. This allows third-party fund managers to utilise the ETF Securities platform – including legal, accounting, custody, market makers, and sales people – but brand the ETF with the fund manager’s brand.
The partner for the new ETF Securities product is efunds, one of the largest fund management corporations in China, Matt Johnson, head of distribution EMEA, confirmed.
“The ETF tracking the MSCI China Asia Index will be the first product of this venture to launch. We’ve had over 200 discussions with interested parties, and have signed nearly 50 non-disclosure agreements. Going forward we are aiming to bring new products of this type to the market every quarter, if not every month,” he added.
Opportunity with a payoff
A similar venture has already been unrolled in the market by Deutsche Asset and Wealth Management, who use Harvest as their sub investment managers, and Source, who buddied up with Hong Kong-based CSOP.
For investors seeking to gain China exposure, these strategies offer opportunities but investors should be aware of the payoff between the 3 physical ETFs available.
“On one hand you get better diversification with the greater number of stocks in the MSCI (450 odd stocks), the CSI 300 (300 stocks) and the FTSE 50 (50 stocks). The 300 has a much broader spread of sectors, whereas the 50 is very concentrated in financials, which many investors do not want due to the concerns about Chinese shadow banking,” according to Peter Sleep, senior portfolio manager at Seven Investment Management.
“On the other hand you have a slightly higher cost with the 50 very cheap and easy to create as there is a deep and liquid future, the CSI 300 slightly more expensive to trade and the MSCI index being the most difficult.”
“I think short term traders might therefore prefer the 50 index and more long term investors might go for the MSCI or the CSI 300 index,” he added.
Earlier in January, two physical-backed ETFs were listed on the LSE. London-based Source launched its Irish-domiciled China A shares ETF on the London Stock Exchange while Deutsche Asset and Wealth Management traded a rival product.
