China Post Global launches Japanese smart beta ETF on Deutsche Börse

Jun 7th, 2017 | By | Category: Equities

China Post Global, an international asset management firm affiliated to the Chinese postal savings bank, has launched a new equity index exchange-traded fund, issued under its Market Access range of ETFs, on Deutsche Börse’s Xetra and Frankfurt exchanges.

China Post launches Japanese smart beta ETF on Deutsche Börse

Year to date, the iSTOXX MUTB Japan Quality 150 Index has provided superior returns of 9.3% compared to 6.3% for the broader market benchmark, the STOXX Japan 600 Index. (Data as of 6 June 2017)

The Market Access iSTOXX MUTB Japan Quality 150 Index UCITS ETF tracks the iSTOXX MUTB Japan Quality 150 Index, a reference for the performance of 150 Japanese stocks with quality characteristics such as high earnings potential, low debt, sustainable cash flows and economic stability.

According to Danny Dolan, managing director, China Post Global: “The fund is aimed at institutional and wholesale investors internationally, and is being launched with €27m of seed capital, drawn from institutional investors and private banks in Asia and in Europe.”

The underlying index, developed in August 2015 as a collaboration between STOXX and Japanese trust bank Mitsubishi UFJ, is derived from the STOXX Japan 600 Index. For all components in the underlying index, a combined ranking of four fundamentals ratios (return on equity, debt-to-capital, cash flow generation ability and business stability), as well as a liquidity screen, is calculated. Stocks are ranked according to these scores with the top 150 being eligible for inclusion in the index.

These constituents are weighted by free-float market cap, with a single component’s weight cap of 2% to promote diversification within the final index. The index is reviewed semi-annually in June and December after the review of the underlying parent index, and rebalanced quarterly in March, June, September and December.

Commenting on the benefits of the index’s methodology to investors, Dolan told ETF Strategy: “Japan has performed very well over the last couple of years, and international investor interest in its equity market is growing, though there is a perception that some Japanese companies are still hampered by legacy issues. We wanted to address these concerns by launching a product that selects companies with the strongest financial positions. We believe this quality-factor approach to the Japanese equity market is well suited to investors looking to capitalise on the positive developments in the country’s economy and the ongoing stimulus and reform programme of Prime Minister Shinzo Abe.”

On the prospects of the Japanese market in general, Dolan added: “The Japanese market is very buoyant with strong prospects for growth, driven in particular by the success of the Abenomics policies implemented over the last few years. The main Topix index is comfortably outperforming the S&P 500 in dollar terms so far this year and we believe there is more to come.”

As of the end of April 2017, the largest sector exposures of the index was to industrial goods & services (23.9%), automobiles & parts (11.3%), personal & household goods (11.3%), healthcare (9.7%) and technology (6.7%).

The Japanese yen-denominated fund is physically-replicating, treats dividends as accumulating within the fund, and has a total expense ratio (TER) of 0.50%. It is due to be rolled out on the SIX Swiss Exchange in the coming weeks.

The index has returned 9.3% year to date (6 June 2017) and 23.4% over the past year (Data for the yen-denominated gross return index). This compares favourably to the return on its parent index – the STOXX Japan 600 Index returned 6.3% and 21.9% over the same periods.

The fund becomes the ninth ETF in China Post Global’s Market Access ETF suite which the firm acquired from the Royal Bank of Scotland in March 2016. (See: China Post enters Europe via acquisition of RBS ETF range). The purchase marked the first time a Hong Kong asset manager acquired a European UCITS ETF umbrella and its investment management team. At the time of sale, the Market Access range consisted of ten ETFs; however, China Post Global has subsequently streamlined its offering by closing the Market Access MSCI Emerging & Frontier Africa ex South Africa Index UCITS ETF and the Market Access MSCI Frontier Markets UCITS ETF.

According to Dolan, this launch will be followed in the coming months by two smart beta China equity ETFs, one taking a similar quality-factor approach, and the other employing a minimum-variance strategy.

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