Taiwan’s Cathay Securities Investment Trust Company (SITC) is moving into exchange-traded funds with the launch of an A-share tracker.
The firm's ETF will physically replicate the FTSE China A50 index and be launched on April 1. Fundraising will start on March 16 targeting both retail and institutional investors.
At present there are seven China A-Share ETFs listed on the Taiwan Stock Exchange, with a total AUM of NT$69.8 billion ($2.2 billion) as of January. Most track indices provided by China Securities Index Company, such as the CSI300, SSE180 and SSE50.
But Eddie Cheng, manager of Cathay's pending ETF, argued that funds tracking the China A50 demonstrated better liquidity, at least based on Hong Kong's ETF market, partly due to the availability of index futures offshore.
Cheng expessed confidence that the ETF business was the new driver of fund growth on the island. “Taiwan’s ETF market development has been slower than Hong Kong’s, but both institutional and retail investors have shown demand for passive index investments as instruments in asset allocation,” he said, adding he expects the market to expand further domestically.
The firm has built a six-strong ETF team since it started hiring in June 2013. “[We] would like to complete our product line and position as a fund manager in the Greater China region by growing our assets in mainland China,” Cheng added.
Cathay's new ETF will invest 80% of its holdings in A-shares via the qualified foreign institutional investor (QFII) scheme, and 20% in SGX FTSE A50 index futures on the Singapore Exchange to minimise tracking error.
Cathay has reserved $1.5 billion of its QFII quota for the fund, out of its overall $4.5 billion quota. For the listing it will partner CSOP Asset Management, which will act as a technical consultant, sharing its experience of launching a similar product in Hong Kong.
Cheng said investors with an insurance background would be one of the main targets for fundraising due to parent company Cathay Financial’s insurance background, which meant SITC had more insurance-related clients than other fund houses.
The CSOP A50 and iShares A50 are the two largest Hong Kong-listed A-share ETFs by AUM. The SGX FTSE China A50 is the only index futures vehicle in the offshore market, with demand for such futures growing over the past year alongside interest in China equities exposure, as reported.
Cathay SITC manages a total of NT$427 billion in AUM, including mutual funds, private funds and institutional mandates. Its mutual fund assets totalled NT$111 billion as of the end of last year.