CSOP launches ETFs providing direct access to Chinese A-Shares

Oct 23rd, 2015 | By | Category: Equities

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CSOP Asset Management, the Hong Kong-based asset manager, has followed up its debut exchange-traded fund, the CSOP FTSE China A50 ETF (NYSE Arca: AFTY), with two new launches also targeting Chinese equity exposure. Both funds track the performance of Chinese A-Shares (those listed in mainland China) while one of the funds employs currency hedging against the US dollar, a relatively new development in China-themed ETFs.

CSOP launch ETFs providing direct access to Chinese A-Shares

One of the new launches provides a full currency hedge against the US dollar, a new development in A-Share ETFs.

Louis Lu, Portfolio manager at CSOP Asset Management, commented: “After launching our first FTSE China A50 ETF in the US market, we are proud to bring two more exciting products to US investors. With the expedited opening steps of China’s capital market, we maintain a constructive view on China’s A-shares market and think it is good timing for US investors to increase their holdings of China A-shares.”

CSOP Asset Management holds the largest Renminbi Qualified Foreign Institutional Investor quota of all off-shore Chinese asset managers. Their participation in this scheme allows them to offer direct access to mainland A-Shares rather than through the use of proxy shares. A recent report from CSOP indicates that these proxy shares have a historic correlation of 0.65 with the Shanghai Composite Index, highlighting their shortcomings as a vehicle of access to Chinese exposure.

By offering direct access to A-Shares, CSOP can provide additional benefits to investors relative to the provision of proxy shares. One such benefit is diversification as the historic correlation between the A-Share market and the S&P 500 has been relatively low at 0.4.

The CSOP MSCI China A International Hedged ETF (NYSE Arca: CNHX) captures the performance of the domestic Chinese equity universe while mitigating adverse currency movements between the US dollar and the Chinese yuan. The fund invests in mid- and large-cap stocks trading on the Shanghai and Shenzhen Stock Exchanges. The total expense ratio of this fund is 0.79%.

The underlying index, the MSCI China A International Index, represents the basket of A-Share securities that are to be included in MSCI’s core indices, such as the MSCI Emerging Markets Index, when MSCI concludes that Chinese authorities have sufficiently opened their capital markets to foreign investors. This allows investors to replicate ‘China-inclusive’ emerging market exposure within their portfolios by adding tactical allocation to the fund while already holding an ETF tracking the MSCI Emerging Markets Index.

The CSOP China CSI 300 A-H Dynamic ETF (NYSE Arca: HAHA) tracks the return of the CSI 300 Index. The CSI 300 tracks the performance of the 300 most representative A-shares listed on the Shanghai and Shenzhen stock exchanges, as measured by a combination of market capitalisation and liquidity.

Where this fund differs from others following the CSI 300 is in its treatment of firms that have dual listings in mainland China (A-Shares) and also in off-shore exchanges (H-Shares). Every month, the fund uses a simple transparent methodology to determine whether the A-Share or its counterpart H-Share are undervalued relative to each other. The fund will switch its holdings to the undervalued option if the difference passes a threshold that covers expenses such as trading costs.

Using back-tested testing, as of 30 September 2015, the CSI 300 ‘Smart’ Index outperformed the CSI 300 Index by 103% (compared by total return). The total expense ratio is 0.75%.

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