Hong Kong-based Fullgoal Asset Management has launched a fixed income exchange-traded fund on the London Stock Exchange, becoming the first Chinese issuer to list an ETF in Europe independently in its own right.
To mark the launch of the ETF, Chen Ge, CEO of Fullgoal Fund Management, and Mark Makepeace, CEO of FTSE Russell, opened the day’s trading on the London Stock Exchange.
The Fullgoal FTSE China Onshore Sovereign and Policy Bank Bond 1-10 Year Index ETF (LSE: RMB3) 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. The FTSE Russell index reflects the performance RMB bonds issued by China’s Central Government (Ministry of Finance) and policy banks China Development Bank, Agricultural Development Bank of China and Export-Import Bank of China.
These banks were established in 1994 to take over the government-directed spending functions of the four state-owned commercial banks. The banks are responsible for financing economic and trade development and state-invested projects.
Approximately 60% of the China onshore fixed income securities are issued by China’s Central Government and the three policy banks.
The ETF uses a physical optimized sampling process to track the index, which, as as at May month end, had a weighted average yield of 3.1% and a modified duration of 4.0 years. The largest issuer in the index was China’s Central Government (41.0%), followed by China Development Bank (31.4%), Agricultural Development Bank of China (15.6%) and Export-Import Bank of China (12.0%).
Nikhil Rathi, Chief Executive of London Stock Exchange and Group Director of International Development, commented in a statement: “Chinese issuers are increasingly looking to access European investors and today’s listing is significant as it is the first time a Chinese firm has listed an ETF independently in Europe. In choosing to list this ETF, which tracks an innovative FTSE Russell index, on both London Stock Exchange and Borsa Italiana, Fullgoal have shown that LSEG is the partner of choice for Chinese issuers looking to access European investor capital”.
Michael Chow, Head of International Business and Managing Director at Fullgoal Asset Management, added: “We are delighted to be the first Chinese asset manager to list an ETF on London Stock Exchange. The Chinese onshore fixed income market is the world’s third-largest bond market. Our fund provides an avenue for overseas investors to access an otherwise not easily accessible market. We believe that, over time, RMB fixed income will become an essential asset class for global investors.”
London is increasingly making a name for itself as a preferred offshore venue for RMB-denominated investment launches. Other recent listings on the exchange in 2016 include the first Chinese sovereign RMB bond issued outside of China, RMB 5bn of short-term central bank notes from the People’s Bank of China, and $1bn in dual currency green bonds from the Agricultural Development Bank of China. The exchange also hosts nine ‘Renminbi Qualified Foreign Institutional Investor’ ETFs providing direct exposure to Chinese A-share equities and fixed income markets.
The ETF has been set up as a distributing fund with income allocated to investors up to four times per year. The fund has a net expense ratio of 0.55%. It is expected to be rolled out on Borsa Italiana later this week where it will trade in euros.