GSAM launches China government bond ETF in Europe

Oct 24th, 2019 | By | Category: Fixed Income

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Goldman Sachs Asset Management (GSAM) has introduced its second ETF in Europe: the Goldman Sachs Access China Government Bond UCITS ETF.

Peter Thompson, Head of GSAM’s European ETF Business

Peter Thompson, Head of GSAM’s European ETF Business.

The fund, which provides exposure to the Chinese government bond market, has listed on the London Stock Exchange (CBND LN) in dollars and on Xetra (GASF GR) in euros.

It comes with an expense ratio of 0.35%.

GSAM has partnered with index provider FTSE Russell to develop the fund’s underlying index, the FTSE Goldman Sachs China Government Bond Index.

The index measures the performance of renminbi-denominated fixed-rate bonds issued by the Chinese treasury and regional Chinese governments.

Eligible bonds must have a minimum issue size of at least CNY 20 billion and at least one year remaining until maturity. The index is weighted by market capitalization and rebalanced monthly. The fund tracks the index physically using a sampling technique.

GSAM makes use of the Bond Connect programme, a scheme that enables overseas investors to trade in Mainland China bond markets, to gain access to underlying Chinese bond instruments.

The market for Chinese bond ETFs is relatively undeveloped with only BlackRock and DWS offering comparable products, namely the iShares China CNY Bond UCITS ETF (CNYB NA) and the Xtrackers II Harvest China Government Bond UCITS ETF 1D (CGB LN).

China inclusion

Back in January this year, Bloomberg Indices confirmed that it would, as of April, start to include Chinese RMB-denominated government and policy bank bonds in the Bloomberg Barclays Global Aggregate Index with the total weight of China exposure set to reach 6% at the end of a phased, 20-month period.

The Bloomberg Barclays Global Aggregate Index is a leading barometer of the global fixed income market and itself an underlying reference index and benchmark to countless billions of invested assets. Within the ETF space, linked products include the $3.2bn iShares Core Global Aggregate Bond UCITS ETF (AGGG LN) and the $629m SPDR Bloomberg Barclays Global Aggregate Bond UCITS ETF (GLAG LN).

Other leading fixed income index providers are undertaking similar actions. In September, JPMorgan announced its intention to phase in China bonds to the JPMorgan Government Bond Index-Emerging Markets Index from February 2020. And FTSE Russell, despite initial reservations relating to foreign exchange restrictions and weak trading volumes, is expected to follow suit. As such, demand for Chinese bonds is set to increase substantially.

Commenting on the launch, Andrew Wilson, CEO of GSAM International and Global Head of Fixed Income, said, “This latest launch marks the next step in our efforts to deliver more choice for clients with a new route into the Chinese bond market. With an estimated $2.5 trillion assets currently tracking the Global Aggregate Index, we anticipate significant demand for Chinese government bonds. We believe investors stand to benefit from additional geographical and currency diversification, alongside exposure to the maturing Chinese economy, by accessing this market in a smart, cost-efficient way.”

European expansion

GSAM made its ETF debut in Europe at the end of September with the launch of the Goldman Sachs ActiveBeta US Large Cap Equity UCITS ETF (GSLC LN) on LSE. This fund is a Dublin-domiciled version of its highly successful flagship ETF in the US and provides multifactor exposure to US large-caps by tilting towards value, momentum, quality, and low volatility risk premia. Its expense ratio is 0.14%.

The firm has made clear its intention to expand its European ETF offering significantly over the next six months.

Peter Thompson, Head of GSAM’s European ETF Business, said, “The latest addition to the GSAM European ETF range provides investors with a smart, simple solution to accessing the Chinese bond market. We remain focused on providing clients with superior choice, flexibility and performance as we build our ETF capability in Europe and this product brings together the best of GSAM’s investment expertise in an accessible format.”

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