Hong Kong-based fund house CSOP Asset Management has launched the first RQFII bond ETF tracking China’s onshore treasury bond index.
Jack Wang, who heads the firm’s sales group, says it is designed to meet the demands of international institutions in particular that prefer transparency in bond holdings.
As such it serves as a transparent alternative to CSOP’s existing renminbi-denominated qualified foreign institutional investor (RQFII) bond fund, which was launched in 2012 and now has Rmb1.1 billion ($181 million) in assets.
“China’s onshore bond market is complicated and relatively opaque to international investors [as an OTC market],” Wang tells AsianInvestor. “As a result, many institutional investors ask about our holdings in the [2012] fund.
“But we find it very difficult to disclose full holdings in a timely manner [immediately] as it involves trading strategies and is not common practice [for fund managers]. The Treasury bond ETF, on the other hand, is very transparent and we believe this can facilitate their needs.”
The CSOP China Five-year Treasury Bond ETF raised Rmb750 million in its IPO on January 17 and was listed on the Hong Kong Stock Exchange yesterday. Wang confirms that most of this money came from Hong Kong-based institutions. In the secondary market, however, it is expected to garner retail interest.
China’s treasury bond index comprises fixed-rate, interest-bearing government treasuries with maturities ranging from four to seven years. As of January 17, the index had a capitalisation of Rmb1.3 trillion with 48 constituents. The annualised management fee for the ETF is 0.49%.
Wang points to the yields of China’s onshore treasury bond market as attractive relative to offshore RMB-denominated (dim-sum) bonds. A five-year treasury bond offers a 4.2-4.5% yield, against 2.5-3% for dim-sum bonds of the same credit rating. Treasury bonds, he notes, can offer yields of at least 4% after fees.
He adds that another incentive for launching ETFs is that they provide a vehicle to avoid the distribution bottleneck.
Chinese authorities permitted Hong Kong-based financial institutions to enroll in the RQFII programme from March last year, since when international banks such as HSBC and Hang Sang have obtained licences.
With a range of RQFII bond funds available on banks’ shelves, this has forced fund managers to try and find alternative distribution channels for their products.
Wang confirms that CSOP is trying to reduce its dependency on traditional distributors such as banks
“ETF is a new channel for us to distribute our bond investment products as there are already a lot of products available on bank platforms," he says. “When it comes to ETFs, investors can save on upfront fees and we can save on distribution costs.”
