WisdomTree and ICBC launch all-class China ETF

Jul 31st, 2016 | By | Category: Equities

Exchange-traded fund provider WisdomTree and Hong Kong-based asset manager ICBC Credit Suisse (ICBCCS) have joined forces to launch a new China-focused ETF on the London Stock Exchange (LSE). The fund is the first European-listed, physically replicating UCITS ETF to offer exposure to a combination of Chinese equity classes.

WisdomTree and ICBC Credit Suisse launch China equities ETF on LSE

To mark the launch of the ETF, London Stock Exchange today welcomed Richard Tang, Chief Executive Officer, ICBCCS to open trading in London.

The ICBCCS WisdomTree S&P China 500 UCITS ETF (LSE: CHIN) tracks the S&P China 500 Index, a reference for the float-adjusted market cap-weighted performance of the 500 biggest and most liquid Chinese firms across all Chinese share classes, including A-shares and offshore listings such as those trading on the Hong Kong Stock Exchange – known as H-Shares. The index was launched by S&P Dow Jones Indices in September 2015. (See: S&P DJI unveils comprehensive China index)

The fund is the tenth ETF as part of the Renminbi Qualified Foreign Institutional Investor (RQFII) program to list on the LSE and the third RQFII product to launch in 2016. The RQFII program allows international investors, on a selective basis, to trade a quota of China’s A-Shares (Renminbi-denominated shares listed on either the Shanghai or Shenzhen stock exchanges). These securities are otherwise restricted to local investors only.

Nizam Hamid, ETF Strategist at WisdomTree Europe, explained that market access to Chinese equities has long been an issue for investors and the creation of a UCITS ETF that covers all the relevant share classes in a single product brings substantial benefits. “It represents a cost effective means of allocating to a broad index whilst removing the operational and administrative burdens often associated with accessing A-shares. The collaboration with ICBCCS means that European investors have a transparent and liquid single product to invest in China.”

Richard Tang, Chief Executive Officer, ICBCCS, added: “The ETF combines exposure to both onshore and offshore China equity share classes which offers investors a diversified and transparent tool to access the broad China market efficiently. With access to the exposures of the top 500 Chinese corporations listed across multiple markets, we are delighted to launch this flagship China ETF in London.”

The ETF uses a rules-based stock selection process to target the sector weights that are representative of the broad universe of Chinese equities. As of 30 June the largest sector exposures are to financials (28.3%), information technology (16.9%), industrials (13.7%), consumer discretionary (11.3%) and materials (8.5%). The largest holdings in the fund are Tencent Holdings (6.5%), Alibaba (4.6%), China Mobile (3.4%), China Construction Bank (3.3%) and Ping An Insurance (2.4%).

It is denominated in RMB and trades in US dollars (Ticker: CHIN) and British pounds (Ticker: CHIP). It has a total expense ratio of 0.75%.

The performance of Chinese equities over the past 10 years has undergone a rollercoaster ride, complicating the analysis of the S&P China 500 Index’s past returns in an attempt to forecast its future performance. For example, the 1-year, 3-year, 5-year and 10-year annualized returns of the index are -28.3%, 9.4%, 1.5% and 10.5% respectively, influenced by strong bull markets from mid-2006 to the end of 2007 and from mid-2014 to mid-2015, as well as extended sharp declines following these rallies. The annualized 5-year standard deviation of the index is 23.7%.

Source: S&P Dow Jones Indices

Source: S&P Dow Jones Indices

While the ICBCCS WisdomTree S&P China 500 UCITS ETF is the first UCITS-compliant ETF to offer exposure to all Chinese equities share classes, there are a number of significant ETFs currently available targeting either mainland China’s A-Share market or Hong Kong-listed H-Shares.

Those targeting A-Shares include the iShares MSCI China A UCITS ETF (LSE: CNYA), which has 433 constituents and a TER of 0.65%; the db x-trackers FTSE China 50 UCITS ETF (LSE: XX25), which tracks the 50 largest companies listed on mainland China and has a TER of 0.60%; and the Source CSOP FTSE China A50 UCITS ETF (LSE: CHNA), which provides the return of the 50 largest companies listed on mainland China and has a TER of 0.99%.

ETFs covering the H-Share market include the iShares China Large Cap UCITS ETF (LSE: IDFX), which targets the 50 largest Chinese stocks listed on the Hong Kong Stock Exchange and has a TER of 0.74%; and the Lyxor China Enterprise (HSCEI) UCITS ETF (LSE: ASIU) which has 40 constituents and a TER of 0.65%.

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