Ignites Asia

May 14, 2013 2:31 pm

China’s ETF pipeline bulging with sector funds

Ignites Asia

Ignites Asia, a Financial Times publication, provides news and analysis of the Asian fund industry. http://www.ignitesasia.com


China’s fledgling sector exchange traded fund market is expected to flourish this year, with a host of funds ready to launch.

China Universal Asset Management filed in March to launch four sector ETFs tracking the CSI Main Consumption, CSI Medical, CSI Energy and CSI Financial and Real Estate indices.

Meanwhile, E Fund Management filed last month for seven ETFs tracking CSI 300 Index sectors including the Nonferrous Metal, Non-Bank Financial, Main Consumption, Bank, Energy, Medical and Real Estate indices.

One of the drivers for the activity is a rule in effect this year lifting restrictions on the number of funds companies can apply to launch, according to Dai Hongkun, Shanghai-based chief analyst at Shanghai Securities’ fund research centre.

Some companies have jumped at the chance to apply for a bulk of sector ETFs in one go, Mr Dai says.

“We have seen a lot of ETFs tracking general indices in the market such as the CSI 300 Index, and now we need segmentation for those ETFs,” he says, noting that passive management is gaining more attention from Chinese fund companies.

“It’s hard for fund managers to beat the market by active management, and there is also demand from investors for passive products,” he says.

Zhang Hongtao, Beijing-based deputy manager of quantitative investment at China Asset Management Company, says sector ETFs are good products for asset allocations.

China’s A-shares have a strong sector rotation feature, so the performance of different sector indices varies from one to another given the same time period, Mr Zhang says. Investors are able to sell the bearish sectors and buy bullish ones via sector ETFs, he says.

In addition, if short selling is allowed on sector ETFs, investors could short-sell ETFs with exposure to bearish sectors to achieve absolute returns, Mr Zhang says.

China AMC launched five sector ETFs in March, and before then China’s market had only three sector ETFs.

ETFs with different strategies are expected to be the next focus for ETF managers, Shanghai Securities’ Mr Dai says.

Leveraged ETFs and inverse ETFs are not yet available in China, but Mr Dai says a few fund companies are preparing for them. He says he also expects to see commodity and futures ETFs.

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