Global index provider FTSE and Value Partners Index Services, a unit of Value Partners Group, have launched the FTSE Value-Stocks China Index. This new China equity index adopts Value Partners' unique value-based methodology and is calculated and maintained by FTSE as a custom index solution.
The new FTSE Value-Stocks China Index captures the performance of 25 quality value stocks among liquid and tradable Chinese companies listed in Hong Kong, including H-shares, red-chips and P-chips. The index enables access to the China market through a transparent and rules-based value strategy and is designed to be used as the basis for exchange-traded funds (ETFs) and derivatives.
Value Partners Group has a reputation for being a pioneer in value investing, particularly in mainland Chinese companies. This year, however, the fund house is branching out and expanding its product offering to include ETFs and bond funds. The move is in line with Value Partners' efforts to keep up with the demand of its clients, introduce innovative products, and reach its target assets under management (AUM) size of $10 billion. As of April, Value Partners had an AUM of $2.9 billion.
"What we are doing is to introduce an index for an investor who wishes to buy a basket of what Value Partners thinks is the best value-stocks available (in Hong Kong)," says Cheah Cheng Hye, Value Partners Group's chairman and CIO.
Eugene Law, deputy CEO of Value Partners Group, says the constituents of the FTSE Value-Stocks China Index must pass a proprietary value screening process which includes valuation, quality, and contrarian criteria. The index's value-based methodology addresses key issues facing true value investors, such as avoiding value traps, focusing on quality and excluding stocks with consensus analyst "buy" calls which have notoriously lagged behind market movements, Law says.
Value Partners is planning to build a niche in the ETF market. The fund house now has the quantitative Asia Value Formula Fund, which has served to improve its learning curve when it comes to ETFs. The plan is to focus on enhanced ETFs that are aimed at trying to enhance performance by combining index tracking with proprietary investment strategies.
The present Asia Value Formula Fund was inspired by an article Cheah read in the CFA magazine around three years ago, where a professor looked into how picking the 50 most undervalued stocks in the S&P 500 could help outperform a normal ETF. Value Partners applied that concept to the MSCI Asia ex-Japan Index by picking the 100 most undervalued companies within the index.