China Post Global launches smart beta Japan and China ETFs
March 2016 saw RBS’s ETF range Market Access move to China Post Global, in a transition that managing director Danny Dolan describes as ‘smooth’. “The team and I were at RBS previously with the ETFs,” Dolan explains, “and we moved here in parallel to the acquisition in a very smooth process.”
The move brought EUR360 million in ETF assets over to China Post Global who plans to build the business, launching new ETFs and raising new assets.
“We were brought here to build up the assets under management,” Dolan says. “Since moving across, we have hired three specialist sales people here and in Hong Kong and Shanghai to promote our Market Access ETFs and we have also been negotiating partnerships with index development specialists to create new ETFs together.”
The result is the launch of a Japanese equity smart beta ETF with a focus on quality. The index has been developed through a joint venture between STOXX and MUTB and seeks to focus on quality companies drawn from the Japanese blue-chip equity market.
“The index is fully quantitative and based on financial ratios, specifically return on equity, debt to asset, cashflow generation and business stability. So, the companies with the strongest financial positions are selected which we feel is a very good fit to the Japanese market - which is very buoyant with strong prospects for growth, tying closely with Abenomics policies.”
This ETF is launching with EUR27 million of seed capital, drawn from institutional investors and private banks from Asia and Europe.
Coming months will see the launch of two further ETFs, based on smart beta strategies on local China A Shares. One will be a minimum variance strategy and the other will be a China quality ETF.
Dolan says: “Both are an extremely good fit to the Chinese market. Like the Japan quality ETF, they address a common investor need in terms of what strategy they want applied to the particular market.
“In Japan, the outlook is strong but there are still legacy issues for some companies and so we are filtering out companies with less strong financial ratios and it is similar for China. The one concern that many investors have in China is volatility. There is a very compelling case for future growth as China has been contributing more than one third of global growth for six straight years, and this year it is more than 40 per cent, so it is a huge engine for growth in the world.
“However, there is a concern among investors about market volatility so minimum variance identifies and holds the portfolio with the least volatility. It’s a good fit as many investors want an allocation to China and don’t want to miss out on the strong performance being achieved there, but there is a degree of wariness about volatility.”
The China Quality ETF reflects the second most common concern about China which is levels of debt in Chinese companies. “This is a strategy which basically filters out companies with weak financial ratios and addresses that concern directly.”
STOXX and MUTB have provided the China Quality index and STOXX alone created the minimum variance index - which is the only pure unconstrained minimum variance index on China.