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E Fund Management has announced the launch of the E Fund CES China 120 Index ETF, the world’s first cross-market RQFII ETF.
The Renminbi Qualified Foreign Institutional Investor (RQFII) scheme allows licensed foreign investors to buy and sell yuan-denominated A-Shares in China’s mainland stock exchanges.
Headquartered in Guangzhou, with offices in Beijing and Shanghai, E Fund Management is one of the top three largest asset management companies in China, with asset under management close to RMB 200 billion (around $33 billion).
Its new ETF, which has been listed on the Hong Kong stock exchange, is linked to the CES China 120 Index (CES 120). Passively managed, the fund’s objective is to offer an investment return that corresponds as closely as possible, before fees and expenses, to the performance of this index.
The index consists of the 80 largest and most liquid A-Shares trading on the Shanghai and Shenzhen stock exchanges, as well as the 40 largest and most liquid H-Shares and Red Chips listed on the Hong Kong stock exchange.
A-Shares are shares issued by companies incorporated in mainland China and traded in Renminbi on the Shanghai and Shenzhen stock exchanges; H-Shares are shares issued by companies incorporated in mainland China and listed in Hong Kong; while Red Chips are shares issued by largely government-controlled China-based companies that are incorporated outside of mainland China (typically in Hong Kong) and listed in Hong Kong.
The fund is the first ETF to express the cross-border “Greater China” concept. At present there are eight RQFII-ETFs in the Hong Kong market, all of which only invest in A-shares. Similarly, all of the cross-border ETFs in the mainland market now only invest in H-shares. As the first ETF to invest across the share-class spectrum in both mainland and Hong Kong markets, the fund provides a broader scope of investment for investors, capturing many leading stocks which are out of reach for mainland investors, such as Tencent, China Mobile, Great Wall Motor Company, and Belle International. Meanwhile, the fund also provides an opportunity for Hong Kong-based investors to invest in stocks previous unavailable to them, companies such as Suning Commerce Group, Gree Electric Appliances, Yunnabaiyao, and Vanke.
As well as broadening the opportunity set available to investors, the fund’s risk characteristics may also appeal. According to E Fund Management, the underlying index has exhibited lower volatility while delivering outperformance compared to other similar indices. As of June 30, 2013, the 60-day volatility of the CES 120 was 20.97%, compared to 24.34% for the CSI 300 Index and 25.97% for the FTSE China A50 Index.
The fund is available in both Renminbi (CNY) (ticker 83120) and Hong Kong Dollar (HK$) (ticker 3120).