China Post Global cross-lists low-vol China A-shares ETF on SIX

Jan 13th, 2020 | By | Category: Equities

China Post Global has cross-listed the Market Access STOXX China A Minimum Variance Index UCITS ETF into Switzerland.

China Post Global cross-lists low-vol China A-shares ETF on SIX

China Post Global cross-lists low-vol China A-shares ETF on SIX

The fund, which provides exposure to China’s onshore stock markets while targeting lower total volatility than the market itself, has listed on SIX Swiss Exchange in Swiss francs under the ticker M9SV SW.

First launched in Europe in June 2018, the ETF houses $35 million in assets under management and comes with an expense ratio of 0.45%.

It is already available to trade on London Stock Exchange in pound sterling (M9SV LN) and on Xetra in euros (M9SV GY).

Methodology

The ETF is linked to the STOXX China A 900 Minimum Variance Unconstrained AM (Accessible Market) Index, an index developed by Stoxx with involvement from China Post Global and insight from Axioma risk-factor models.

The index includes China A-shares (companies that are domiciled in China and trade in renminbi on either the Shanghai or Shenzhen stock exchanges) that are eligible for Northbound trading on China’s Stock Connect programmes.

The index implements an optimized minimum variance approach where eligible stocks are selected and weighted so as to reduce portfolio risk. Its sector weights are unconstrained, meaning the index can deliver a purer minimum variance strategy with lower volatility compared to indices that have to maintain similar sector exposures relative to the parent index.

That said, the index does apply certain capping constraints including a maximum weight of 8% per component, and a cap of 35% on the combined weight of all stocks above 4.5%. Trading volumes are also taken into account to ensure that the resultant portfolio is liquid.

The index currently consists of 119 constituents with significant exposure to the consumer non-cyclical (26.1%), utilities (18.4%), industrial (14.9%), financial (14.9%), and energy (14.6%) sectors. The largest individual stock positions are China Yangtze Power (6.9%), Daqin Railway (5.9%), Beijing Tongrentang (5.3%), and PetroChina (4.9%).

The index has generated higher returns with lower risk than the parent Stoxx China A 900 Index over the recent one-year, three-year, and five-year periods. Over the five-year period, for example, the index has returned 19.9% per annum (compared to 11.1% for the parent index) with an annualized volatility of 21.3% (vs. 24.4%). Its resultant Sharpe ratio is 0.9 (vs. 0.4).

The ETF uses full physical replication to track the index with the fund’s managers making use of China’s Stock Connect programmes so as to reduce transaction costs compared to trading locally via QFII and RQFII quota programmes.

China Post Global is the promoter and global distributor of Market Access ETFs, which it acquired from RBS in March 2016. It has offices in Hong Kong and London and is the international asset management arm of China Post Fund, a large asset manager in mainland China established in 2006.

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