Guotai to develop QQQ replica with Nasdaq

Nasdaq is introducing one of the most heavily traded ETFs in the world to Chinese institutional and retail investors.

Powershares QQQ, one of the most heavily traded exchange-traded funds (ETFs) in the world based on the Nasdaq 100 index, will soon find a replica in China especially targeted at institutional and retail investors looking for cheap access in the QDII niche.

Guotai Asset Management says it has signed an official deal with Nasdaq OMX. The deal will allow Guotai to work exclusively with Nasdaq OMX in developing the fund house's first QDII product based on the Nasdaq 100 index. With the product application already submitted to the China Securities Regulatory Commission, Guotai's lovechild with Nasdaq OMX will likely surpass China Southern Fund Management's planned QDII with Standard & Poor's in becoming the first passive QDII in China.

The announcement comes after a frustrating year of shopping for a H-share deal in Hong Kong by Shelly Yang, vice-director in charge of international business at Guotai. Yang was last spotted ringing the opening bells for Nasdaq on Thursday, March 26 in New York with Guotai CEO Xu Jin.

The fund house anticipates, pending final regulatory approval, that the product will be ready in six to nine months time.

Cao Dongjie, former chief marketing officer at Guotai who now heads up the company's operations in Shanghai, says the deal is strictly between Guotai and Nasdaq OMX for now. Invesco, the current fund sponsor to the Powershares QQQ ETF in the US, is not in any way involved, he says.

The fund house will announce further details on the fund's market making mechanism and custodian arrangements at a later date, once these deals are final.

The original QQQ was first launched in March 10, 1999 by Nasdaq OMX and then transferred to Invesco Powershares on March 21, 2007. Invesco has recently celebrated the tenth anniversary of the portfolio. At the height of its popularity in 2004, the fund boasted $21 billion under management. As of the end of 2008, according to Invesco's disclosures, total assets under management for its combined portfolio of Powershares products equalled $9.15 billion.

Since inception, the fund is down 5.11%, compared to a 4.90% drop by the Nasdaq 100 index. (The S&P 500 is down by 1.89% over the same period.)

In the dot-com era, the fund was seen by investors as a proxy to liquidity for technology stocks. Now the fund has such a diverse holding of US listed stocks that most analysts find it hard to classify the fund.

As of March 27, the fund had 66.8% of its assets in large-cap growth stocks, 8.69% in large-cap value, 20.85% in mid-cap growth and 3.66% in mid-cap value.

The fund has a 12.84% exposure to consumer discretionary, 1.25% to consumer staples, 18.42% to healthcare, 5.27% to industrials, 61.09% to information technology, 0.56% to materials, and 0.57% to telecom services.

Its top holdings include: Apple Inc at 11.82%; Qualcomm 6.90%; Microsoft 4.94%; Google 4.52%; Gilead Sciences 3.54%; Oracle Corp 3.37%; Cisco Systems 3.15%; Teva Pharmaceutical 2.88%; Intel Corp, 2.67%; and Research in Motion 2.27%.

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