CSOP Asset Management (CSOP) has launched the CSOP S&P China Sectors ETF on the Hong Kong Stock Exchange, offering investors access to the country’s new growth sectors as China transitions from an investment-led to a consumption-led economy.
The CSOP S&P China Sectors ETF provides investors with access to the performance of the sectors best positioned to profit from the growth of China’s new economy.
Underlying the ETF is the S&P New China Sectors Index, which includes Hong Kong-listed companies, US-listed American Depository Receipts (ADRs) and China A-shares. By diversifying across stock types, currencies and listing markets, the index seeks to mitigate currency risk and prevent any ripple effects from the suspension of any of the ETF’s A-share constituent stocks.
Most current China-themed ETF offerings mainly reflect old economy sectors such as banking, energy and industrials. Instead, the CSOP S&P China Sectors ETF will mimic the performance of the “new economy” spanning new technology, healthcare and pharmaceuticals.
All companies classified within specific GICS sectors and industries related to consumer and service-oriented businesses are included. Eligible Constituents must have a minimum free float capitalisation of $2.5bn and three-month average traded value of at least $8m. They are weighted by free-float market capitalisation with a maximum weight of 10% at index rebalance dates to promote diversification.
“Consumption and service-related industries are becoming structurally more important in China,” said Michael Orzano, Director of Product Management, Global Equity Indices at S&P Dow Jones Indices. “Given the S&P New China Sectors Index only includes companies operating in consumer and service-oriented sectors, this new benchmark will offer investors a unique exposure to the ‘New China’ economy. It also offers a high level of differentiation from existing and widely used Chinese equity benchmarks.”
Melody He, Head of ETF and Index Solutions Group at CSOP expects the ETF focus in Hong Kong to move further away from economy-related to sector-related, in anticipation of the introduction of the ETF Connect – an upgrade of Stock Connect, which will allow investors in Hong Kong to access Mainland ETFs and vice versa.
As of 30 November 2016 there are 95 constituents in the index with significant weighting towards the information technology (30.4%), consumer discretionary (20.4%), financials (16.9%) and telecommunications services (10.1%) sectors. The top holdings are Alibaba (11.1%), Tencent Holdings (10.2%), AIA Group (7.8%), China Mobile (6.8%) and Baidu (5.1%).
The index has outperformed the broad-based HSCEI and MSCI China Index by 54% and 40% respectively since its inception at the end of October 2016.
Using back-tested data, the index is up 9.3% per annum over the past five years with an annualized standard deviation of 19.1%.
Source: S&P Dow Jones Indices.
The fund will seek to follow a full replication strategy in tracking the index. Estimated ongoing charges for the ETF is 2% per annum.