Polaris Securities Investment Trust is seeking to be the first Taiwanese asset manager to launch an onshore China-focused ETF after receiving its QFII licence just over a week ago.
The largest issuer of ETF funds in Taiwan, Polaris is preparing a new product that tracks the Shanghai Stock Exchange 50 Index to enable retail investors on the island to gain direct access to China’s equity market.
“We chose SSE 50 because it well represents [the A-share market], and a limited number of shares are relatively easy for us to manage at this initial stage as we start to build experience in the China market,” Polaris CEO Julian Liu Tsung-Sheng tells AsianInvestor.
Polaris has set up a team dedicated to the new ETF fund project, including legal, compliance, back office, product design and portfolio management. “This week the team is flying to Shanghai to meet index providers, counterparty brokers and the regulator to discuss details of the new product plan,” adds Liu.
The China Securities Regulatory Commission granted Polaris a qualified foreign institutional investor (QFII) licence on March 11. The asset manager hopes to receive a quota of $150 million from the State Administration of Foreign Exchange (Safe) before the end of this year.
Polaris manages the W.I.S.E. Polaris CSI 300 Securities Investment Trust Fund, a feeder fund that invests in the synthetic exchange-traded fund W.I.S.E. – CSI 300 China Tracker, which is cross-listed on exchanges in Hong Kong and Taiwan.
Liu notes that the total cost of investing in Polaris’s new ETF fund will be over 1% lower than for the feeder fund. But its AUM will be limited by the QFII quota, some of which Polaris intends to allocate to existing actively managed Asia-focused funds to increase their weight in China. The AUM of the feeder fund stood at NT$14.67 billion ($496 million) at the end of February.
“Since China’s macro-policy is still focusing on managing inflation, I don’t think the A-share market will have a strong performance in the short term,” says Liu. “Plus, since the [QFII] quota will be limited, I would suggest giving more attention to the ETF fund first.”
Daniel Yang, Polaris’s CIO, notes that most managers of China-themed mutual funds want to invest directly in China.
“To make the investment products more competitive, asset managers will firstly allocate the QFII quota to their existing funds. The idea of launching a brand new actively managed China fund still needs to be tested, depending on how complicated the product is and how well it is accepted by the market.”
Polaris is the third Taiwanese institution to obtain a QFII licence, after Capital Investment Trust and Fubon Securities Investment Trust, which both received licences last October and are still awaiting quotas from Safe.
There are four QFII applications from Taiwanese institutions still to be approved, namely Yuanta, Pramerica, Fuhwa and Cathay.