The Hong Kong unit of mainland asset manager China Universal today closes initial fundraising for the world’s first two sector-based RQFII exchange-traded funds.
One of the products focuses on domestic health-care stocks and the other on consumer staples, with both to list on the Hong Kong stock exchange next Monday, May 12. To date the firm has targeted asset owners, managers and hedge funds in Korea, Taiwan, Singapore and Hong Kong, although the amount raised has not yet been announced.
The ETFs will each utilise Rmb300 million of renminbi-denominated qualified foreign institutional investor (RQFII) quota, which China Universal Asset Management (HK) will transfer from its CUAM RMB Bondplus Fund. That product received Rmb1.1 billion in quota from the State Administration of Foreign Exchange (Safe) in 2012.
Each ETF covers 60 stocks across the Shanghai and Shenzhen exchanges. One of the funds will track the CSI Healthcare Index, while the other tracks the CSI Consumer Staples Index.
Yang Jian, head of index and quantitative investment at China Universal Asset Management (Hong Kong), tells AsianInvestor these products fill an investor need, given that existing RQFII ETFs already cover broad market indices.
At present RQFII exchange-traded funds listed in Hong Kong, London and New York track the CSI 300, FTSE A50, MSCI and CES China indices.
The first RQFII ETF was launched in July 2012. China Universal launched its first RQFII ETF on July 3 last year, as reported.
Yang notes that China Universal chose health care and consumer staples on the grounds that they are better positioned for structural changes as China’s economic growth will be unevenly spread across sectors in the next three to five years.
Recent policy announcements, including relaxation of the one-child policy and continuing urbanisation, will benefit agricultural stocks, while aging demographics should generate increased demand for health care, he argues. At the same time, cyclical sectors need to deleverage.
Consumer staples and health-care stocks were valued at an average of 18.2 times and 36.4 times earnings, respectively, as at the end of March this year, against an average of 9.4 for CSI 300 stocks, by China Universal data.
Consumer staples and health-care stocks delivered accumulated returns of 66.7% and 121.8%, respectively, from 2009 to March this year. The average return for CSI 300 stocks over the same period was 14%.
China Universal has engaged eight participating dealers and four market-markers for the two new ETFs. Yang says it will target Taiwanese investors via overseas banking units (OBUs) and also seek to partner insurers through investment-linked products.
It also aims to partner brokerages in Singapore to access the city-state’s retail market. “We hope to attract more retail investors to improve the liquidity of our ETFs,” says Yang.
Each of the new ETF’s management fee is 50 basis points per annum, with China Universal expecting a total expense ratio of 0.8%.
As at April 30, the approximate unit price for the health care ETF was Rmb12.3 and Rmb10.5 for the consumer stables ETF. The minimum subscription was 300,000 units during IPO and will be 200 units in the secondary market.
The participation dealers are China Merchants Securities (HK), Barclays Bank, China International Capital Corporation Hong Kong Securities, Nomura International (Hong Kong), Citic Securities Brokerage (HK), Haitong International Securities, KGI Securities (Hong Kong) and Orient Securities (Hong Kong).
Citic, Haitong and CICC will also act as market-markers. Commerzbank has applied to be a market maker for both ETFs.
Yang joined China Universal in January 2013 from Citigroup Global Markets to help build the firm’s index and quantitative investment business.