Lyxor launches low cost MSCI China ETF on LSE

Nov 6th, 2018 | By | Category: Equities

Lyxor has unveiled a new China ETF – the Lyxor MSCI China UCITS ETF (LCCN LN) – on the London Stock Exchange.

Adam Laird ETF Strategy Lyxor

Adam Laird, Head of ETF Strategy, Northern Europe, at Lyxor ETF

The fund tracks the MSCI China Index, capturing the equity performance of large and mid-cap listed Chinese companies across multiple share classes including A shares, H shares, B shares, Red chips, P chips and foreign listings (ADRs).

The index represents roughly 85% of the Chinese equity universe, according to index provider MSCI.

Large cap A shares are represented at 5% of their free-float-adjusted market capitalisation in accordance with MSCI’s current stance on A share inclusion.

The index provider has recently stated it is considering upping this inclusion factor to 20%.

The underlying index contains over 460 constituents with significant exposure to the information technology (36.5%) and financials (22.6%) sectors, while stocks from the consumer discretionary (8.6%), energy (6.0%) and industrials (5.4%) sectors are also represented but to a far lesser extent.

Tech giants Tencent Holdings and Alibaba make up over a quarter of the total index exposure with weights of 14.7% and 11.9% respectively. The next largest single holdings are China Construction Bank (5.2%), Baidu (3.9%), and China Mobile (3.8%).

Adam Laird, Head of ETF Strategy, Northern Europe, at Lyxor ETF explained the launch was motivated by the interests of the firm’s clients.

“We’ve heard from many investors that China is becoming more of a focus in their portfolios,” said Laird. “And particularly with the ongoing liberalisation of the country’s investment landscape, investors want broad exposure to this market. Our research pointed to MSCI’s index as the top benchmark, so it was a natural choice to underlie our ETF.”

The fund trades in US dollars and tracks the index through indirect, or swap-based, replication. Income is accumulated and reinvested within the fund. It comes with a total expense ratio (TER) of 0.30%, notably undercutting rival offerings in the space including the $320 million HSBC MSCI China UCITS ETF, at 0.60% pa, and the $690m Xtrackers MSCI China UCITS ETF 1C at 0.65% pa.

Lyxor has demonstrated in recent months that it plans to be the one to beat when competing on price. In March, the firm unveiled its ‘Core’ range of ETF products with fees as low as just 0.04%.

“We’ve been ruthless on costs recently and we knew we needed to be competitive in this space,” said Laird. “That’s why we set our fee at 0.30% – half the price of others on the same index.”

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