GF International Asset Management (UK), the European division of the Chinese fund management company, has launched the GF International-FTSE China A UCITS ETF (LON: PRCE), becoming the second Chinese asset manager to independently launch an ETF in Europe.
The GF International-FTSE China A UCITS ETF (LON: PRCE) tracks the performance of over 700 Chinese A-shares.
The physically replicating ETF is the first fund to track the FTSE China A Index, a diversified market capitalisation-weighted reference for the performance of over 700 Chinese A-shares, and the sub-index most likely to be included in the FTSE Emerging Market Index when the expected Chinese market inclusion decision is made.
It gives investors access to large and mid-cap equities on the Shanghai and Shenzhen stock exchanges in China via the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme. The RQFII program allows international investors, on a selective basis, to trade a quota of China’s A-Shares (Renminbi-denominated shares listed on either the Shanghai or Shenzhen stock exchanges). These securities are otherwise restricted to local investors only.
Chuanhui Lin, CEO of GF Fund Management, commented: “Since opening the Chinese market to international investors is no longer a question of ‘if’ but ‘how’, this ETF, the first launched by a Chinese fund manager in Europe, will have an important role to play in promoting international investment in China. It also marks the next step for our strategic growth.”
Miller Guo, CEO of GF International, added: “China is the world’s second largest capital market and offers international investors rich opportunities. The first GF International ETF is a sound, transparent way to access those opportunities across a wide range of industry sectors in China.”
Mark Makepeace, CEO FTSE Russell said: “FTSE Russell has a strong track record of developing China-focused benchmarks with some of the largest Chinese asset owners using FTSE Russell indexes. China continues to make good progress toward opening its domestic A-Share market to foreign investors and we expect to see investors and issuers progressively use our transition indexes, such as the FTSE Global China A Index, to manage the move.”
Within the FTSE Global China A Index Series, the allocation of China A Shares is adjusted proportional to the changes in the approved quota and is in line with the accessibility available to international investors, or can be customised based on a market participant’s specified QFII/RQFII allocation. This approach covers not only the currently available quota schemes (QFII and RQFII), but also those from any other existing and future schemes that increase market access, such as the Shanghai-Hong Kong Stock Connect programme which allows investors to acquire China A-Shares listed on the Shanghai Stock Exchange by means of trading allowances accessible through the Hong Kong Stock Exchange.
As of 31 December 2016, the index was down 12.1% for the year. The largest sector allocations are to industrial goods & services (15.5%), banks (14.0%), financial services (7.4%), basic resources (7.0%) and healthcare (6.8%). The largest constituent is Kweichow Moutai (1.7%) and the combined weight of the top ten constituents is 13.6%.
The fund, denominated in US dollars, has a total expense ratio (TER) of 0.80%.
GF International is responsible for both the ETF’s investment management and distribution, where most other Chinese ETFs listed in Europe are distributed via third parties or joint-venture products. The firm plans to launch further China-focussed ETFs in Europe in the near future.
GF Fund Management is the eighth Chinese firm to issue an ETF on London Stock Exchange, reflecting growing investor demand for access to the world’s second largest economy. The firm is the second Chinese Asset Manager to independently launch an ETF in Europe without the collaboration of a local issuing partner. Hong Kong-based Fullgoal Asset Management became the first Chinese issuer to list an ETF in Europe independently in its own right with the launch of the Fullgoal FTSE China Onshore Sovereign and Policy Bank Bond 1-10 Year Index ETF (LON: RMB3).
The ETF provides exposure to Renminbi-denominated bonds issued by the Chinese government and China’s so-called “policy” banks and settled within in China. The ETF, which is available to trade in US dollars or euros, tracks the FTSE China Onshore Sovereign and Policy Bank Bond Index, and has a TER of 0.55%.
During 2016 several European ETF providers launched products targeting Chinese equities including the launch of the db x-trackers Harvest FTSE China A-H 50 Index UCITS ETF (LON: AH50) by Deutsche Asset Management and the launch of the ICBCCS WisdomTree S&P China 500 UCITS ETF (LON: CHIN), through a collaboration by WisdomTree and Hong Kong-based asset manager ICBC Credit Suisse.
AH50 tracks the FTSE China A-H 50 Index, a reference for the performance of the 50 largest China A-share companies while also capturing any price differentials between dual-listed constituents’ mainland A-Shares and Hong Kong H-shares. The fund has a TER of 0.65%.
CHIN tracks the S&P China 500 Index, a reference for the float-adjusted market cap-weighted performance of the 500 biggest and most liquid Chinese firms across all Chinese share classes, including A-shares and offshore listings such as those trading on the Hong Kong Stock Exchange – known as H-Shares. It has a TER of 0.75%.