MarketGrader and China Securities Index Co (CSI) have announced a partnership to develop a family of smart beta indices tracking the China A-shares market. The indices are being designed to be suitable as the underlying for future investment products including exchange-traded funds.
The CSI MarketGrader indices will track growth at a reasonable price (GARP) stocks from within the China A-shares universe.
The CSI MarketGrader indices will use a proprietary growth at a reasonable price (GARP) stock selection methodology to identify financially strong companies in the A-shares universe that are also considered to possess robust growth potential.
Index constituents will be selected based on their overall fundamental score in MarketGrader’s global equity research platform, which currently covers 2,800 A-shares listed on the Shanghai and Shenzhen Stock Exchanges. The indices will be equal-weighted to minimize size bias and apply screens for diversification, including size and sector representation, as well as liquidity to support tradability.
This fundamentals-driven stock selection approach reflects an alternative to traditional selection and weighting methodologies simply based on market capitalization and other smart beta approaches focused on isolating specific factors.
Ma Zhigang, general manager, China Securities Index, commented: “We are very pleased to form this partnership with MarketGrader who has tremendous experience in the research and development of smart beta indexes and to introduce their unique GARP stock selection methodology into the A-share market, providing investors with a new stock selection perspective to help them track the transition of the Chinese economy and discover more investment opportunities.”
Carlos Diez, CEO and founder of MarketGrader added: “We at MarketGrader firmly believe China represents the best capital appreciation opportunity for the 21st century. As such, we are delighted to partner with CSI to bring a smarter indexing alternative to the evolving A-shares market that focuses on capturing the shift underway in the Chinese economy. Our hope is that the CSI MarketGrader Indices will support the greater movement amongst the Chinese middle class from being savers to investors and from speculation on single stocks to disciplined investing for the long-term with a focus on capital appreciation.”
As part of the agreement, two indices will be launched immediately, the CSI MarketGrader China 200 Index and the CSI MarketGrader China New Economy Index.
The CSI MarketGrader China 200 Index seeks to identify the most fundamentally sound companies with the best growth prospects in Mainland China, while the CSI MarketGrader China New Economy Index seeks to select the best GARP stocks in Mainland China within the consumer staples, consumer discretionary, technology, and health care sectors, which MarketGrader and CSI believe are poised to benefit the most from China’s ongoing economic transformation.
Future CSI MarketGrader equity indices in the series will be based on sectors, size, exchanges and investment themes.