China Asset Management Company (ChinaAMC) has launched a new ETF in Hong Kong providing socially responsible exposure to the city’s equity market.
The ETF provides ESG-enhanced exposure to Hong Kong’s equity market.
The ChinaAMC HSI ESG ETF has been listed on the Stock Exchange of Hong Kong where it is available to trade in Hong Kong dollars (3403 HK), Chinese renminbi (83403 HK), and US dollars (9403 HK).
The fund has come to market with approximately $100 million in initial assets.
The ETF is linked to the HSI ESG Enhanced Index which is based on the parent Hang Seng Index, the city’s main stock market barometer.
The Hang Seng Index represents the largest and most liquid Greater China companies trading on the Stock Exchange of Hong Kong. Primary and secondary share listings, as well as real estate investment trusts (REITs), are all eligible for inclusion.
Following a recent overhaul in its construction methodology, the Hang Seng Index has expanded its number of constituents, enhanced its sector diversification, and embedded new rules aimed at preserving the representation of local firms in an index that had become increasingly dominated by Mainland-domiciled companies.
The HSI ESG Enhanced Index, meanwhile, screens out stocks from the Hang Seng Index universe based on various norms and values-based criteria before reweighting the remaining constituents so as to enhance the overall ESG profile.
The process begins by removing known violators of UN Global Compact principles as well as companies with business operations linked to controversial weapons, tobacco, or thermal coal.
Companies are also assigned ESG risk ratings from ESG analytics firm Sustainalytics, and firms with ESG risk ratings that rank in the top 10% of the Hang Seng universe are also removed from the selection pool.
The remaining constituents are initially weighted by float-adjusted market capitalization and then adjusted to increase the weight of stocks with lower ESG risk ratings and decrease the weight of stocks with higher ESG risk ratings.
The index is reconstituted and rebalanced on a quarterly basis.
As of the end of October, the index contained 63 constituents compared to 73 for the parent Hang Seng. Just over one-third (35.7%) of the index was allocated to the financials sector which was broadly in line with the parent index; however, there was notably lower exposure to information technology stocks (21.6% vs. 27.1%) and higher exposure to properties & construction (18.2% vs. 6.8%).
Notable positions included HSBC (9.2%), AIA (8.7%), Tencent (7.1%), HKEX (7.1%), Ping An Insurance (5.1%), and Link REIT (4.8%).
The fund has estimated ongoing charges over a year of 0.15%, making it the cheapest ETF amongst two competing products that also track the same index – the HSI ESG Enhanced Select Index ETF (3136 HK) and E Fund (HK) HSI ESG Enhanced Index ETF (3039 HK) both have ongoing charges of 0.20%.