China Post Global lists iStoxx MUTB Japan Quality ETF on LSE

Jan 15th, 2018 | By | Category: Equities

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China Post Global has cross-listed the Market Access iStoxx MUTB Japan Quality 150 Index UCITS ETF (MAJQ LN) on the London Stock Exchange.

China Post Global lists iStoxx MUTB Japan Quality ETF on LSE

Danny Dolan, Managing Director at China Post Global.

The ETF is the first product China Post Global has listed on the LSE since it acquired the Market Access range of ETFs from Royal Bank of Scotland in 2016.

Danny Dolan, managing director of China Post Global, commented: “We are very pleased to be listing our Japan Quality ETF on the London Stock Exchange, in response to strong demand from UK-based investors seeking exposure to Japanese companies through this differentiated and innovative approach.”

Lida Eslami, head of ETP business development at LSE, added: “We are delighted to welcome China Post Global as a new ETF issuer on London Stock Exchange today. Listing its innovative Market Access Japan Quality 150 Index UCITS ETF in London underlines the growing international investor appetite for exposure to Asian markets, as well as the City’s position as a leading centre for international finance. We look forward to continuing to work with China Post Global to bring new products to market and to deepen the strong economic ties between the UK and China.”

Initially launched on Deutsche Börse’s Xetra and Frankfurt exchanges in June 2017, the fund tracks the iSTOXX MUTB Japan Quality 150 Index, a strategy index based on the performance of 150 Japanese stocks with ‘quality’ characteristics such as high earnings potential, low debt, sustainable cash flows and economic stability.

The 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 this parent 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 then weighted by free-float market cap, with a single-component weight cap of 2% (at rebalance) to reduce concentration in the 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.

The index is currently dominated by three main sector exposures: industrials (27.1%), consumer cyclicals (25.5%), and consumer non-cyclicals (20.4%), as of 1 January 2018. It is, however, fairly well diversified at the stock level; the largest constituent is Fanuc Corp, one of the world’s largest developers of industrial robots, with a 2.3% weight.

Japanese equities were one of the strongest performing asset classes in 2017 thanks to Prime Minister Shinzo Abe’s economic policies, so-called ‘Abenomics’, gathering momentum. The recovery programme helped company earnings and wage growth to rise, unemployment to hit multi-decade lows, inflation to edge higher, and Japan’s main stock indices – the Nikkei 225 and TOPIX – to hit their highest levels in more than two decades. The strong economic performance, and the overwhelming victory that re-elected Abe’s Liberal Democratic Party in October 2017, led to a boost in investor interest.

Data from ETFGI, London-based ETF data provider, shows that assets invested in ETFs listed in Japan increased by over 50% during the first 11 months of 2017 to reach a new high of $269 billion at the end of November.

Dolan added: “A lot of interest has been generated since last year, which was excellent for investments in Japan, ending with the TOPIX index at a 26-year high, but we do suggest investors look closely at the Japanese market, as taking a more selective approach can pay off.”

In 2017, the iSTOXX MUTB Japan Quality 150 Index rose 25.7%, compared to 21.8% for the TOPIX, highlighting the potential for a quality-screened investment in Japanese equities to outperform the broader market.

MAJQ has a total expense ratio (TER) of 0.50% and trades on LSE in pounds sterling. Its Deutsche Börse listing trades in euros under the ticker M9SQ GY, and the fund is also available to trade in Japanese yen on SIX Swiss Exchange (MAJQ SW). There is currently £25m in AUM across all listings.

The fund’s fees are little higher than comparable ETFs offering a similar play on the quality Japan theme. In particular, the BNP Paribas Easy iSTOXX MUTB Japan Quality 150 UCITS ETF (ISTM GR), which launched in May 2017, tracks the same underlying index as the China Post Global product but has a TER of 0.30%.  It trades in euros and currently has €10 million in AUM. However, it does not have a London listing.

For a London-listed alternative, investors could look at the Lyxor SG Japan Quality Income UCITS ETF (SGQJ LN), which provides similar exposure to quality-screened Japanese stocks through the SG Japan Quality Income NTR Index. This fund trades in US dollars, has a TER of 0.45% and AUM of $80m.

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