Securing Quota
U.S.-based asset managers currently aren’t eligible to apply for a license directly, and therefore use sub-advisers to secure quota.
Deutsche Bank has also taken advantage of excess quota from its sister product, the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund, and has the ability to invest on a limited basis in futures contracts to meet investor demand.
That’s helped keep the ETF’s premium over its net asset value from spiking. The fund has actually traded at an average discount of 0.29 percentage point to its underlying securities over the past month, Bloomberg data show.
Now BlackRock, the world’s largest money manager, is looking to roll out a competing U.S.-based product, the iShares MSCI China A ETF, that would similarly invest directly in Chinese equities trading on the Shanghai and Shenzhen stock exchanges, according to a Sept. 15 U.S. regulatory filing.
Since 2004, the fund provider has managed the $9.4 billion Hong Kong-domiciled iShares FTSE A50 China Index ETF, which uses derivatives known as China A-Share access products to replicate mainland stock performance.
CSOP Asset Management, which runs the $6 billion CSOP FTSE China A50 ETF, the world’s second-largest exchange-traded fund investing in mainland Chinese stocks, filed to create a U.S. version of the Hong Kong-registered ETF three days after BlackRock’s filing.
“This ETF product offering, the A-shares suite, is one of many steps in the right direction to get global investors exposure to mainland China,” Chris Hempstead, the head of ETF sales at KCG Holdings Inc. in Jersey City, New Jersey, said in an Oct. 10 telephone interview. “It’s natural people want to own the companies that will win the most from an expanding and growing Chinese economy. People are tired of watching on the sidelines, they want to be involved.”
While there are at least four other U.S.-registered exchange traded funds investing in Chinese A-shares, including products from Van Eck Securities Corp.’s Market Vectors, Invesco Ltd.’s PowerShares and Krane Funds Advisors LLC, none have taken off like the Deutsche Bank ETF. The largest, the Market Vectors ChinaAMC A-Share fund, has about $30 million in assets, Bloomberg data show.