Invesco PowerShares, the fourth-largest US ETF sponsor and a leading global provider of exchange-traded products, has launched an actively-managed equity, quantitative and rules-based ETF that is focused on mainland China stocks, targeting the Chinese A-shares market. With the recent spate of economic data indicating China slowly getting back on the growth trajectory, China-focused funds have witnessed robust price appreciation in recent months.
The PowerShares China A-share Portfolio (CHNA) will track the SGX FTSE A50 Index, a free-float adjusted and liquidity screened benchmark that provides exposure to the largest 50 companies within China as determined by market capitalization.
The constituent companies of the underlying trade in Chinese renminbi/Yuan on the Shanghai and Shenzen Stock Exchanges and the benchmark are adjusted on a quarterly basis for performance. The index is currently biased toward financial companies and includes China Minsheng Banking, China Merchants Bank, Shanghai Pudong Development Bank and Ping An Insurance.
The fund invests mainly in futures contract on the underlying index and further uses a combination of ETFs that provide exposure to the largest companies within the China A-Shares market.
Since foreign investors have restricted access to Chinese equities market, the fund can’t invest directly in A-shares. Only a limited pool of Qualified Foreign Institutional Investors (QFII) is allowed to participate in Chinese equities and the fund adviser has applied for a QFII license and a quota for direct participation.
To sidestep this problem and simulate investment in China A-Share securities, the fund invests in futures contracts on the SGX FTSE A50 Index as a significant part of its investment strategy and underpins it with short-term, high-quality US Treasury securities, money-market instruments, cash and cash equivalent securities.
CHNA is expected to compete with the MarketVectors China A-Share ETF (PEK), the sole exchanged-traded fund until now tracking the A-Shares market in China. PEK tracks the CSI 300 index and uses similar derivative instruments to gain access to the A-Shares market.
The fund has an annual expense ratio of 0.5 percent.
Disclosure: No holdings