New ETFs On The Block: Db X-Trackers Harvest CSI 300 China A-Shares Fund (ASHR)

Ulli China ETFs Contact

101768508Global markets’ interest in Chinese equities received a major boost after the nation’s new leadership announced sweeping social and economic reforms last week.

Coincidentally, Deutsche Asset & Wealth Management, the asset management arm of Germany’s largest lender, launched a unique China-focused exchange-traded fund on Nov 6 offering US investors direct access to the stocks of the world’s second largest economy.

The db X-trackers Harvest CSI 300 China A-Shares Fund (ASHR) seems to have caught the fancy of investors as it debuted with $108 million in assets, the highest for any ETF since 2007. Total assets under management since jumped to more than $146 million with daily trading volume hitting the 1 million mark on Nov 19.

People familiar with investing in China know it’s difficult for foreigners to access the nation’s lucrative equity market as they must obtain the status of a Qualified Foreign Institutional Investor (QFII) first. Exposure to China A-Shares is restricted mostly to domestic investors and is quoted in Chinese renminbi.

Other ETFs, such as the newly-launched PowerShares China A-Share Portfolio (CHNA) and the Market Vectors China ETF (PEK), tap into Chinese equities, but only indirectly, through derivative instruments.

Deutsche Bank’s asset management joint venture in China with Harvest Global Investment enables it to access the A-Shares market. Harvest Fund Management, a wholly-owned subsidiary of the joint-venture and the second-largest asset management company in China with more than $47 billion in assets, is a Renminbi Qualified Institutional Investor (RQFII) and is thus eligible to obtain a quota on behalf of ASHR.

Apart from the RQFII status, foreign investors are also allocated quotas by Chinese regulators. Foreign fund managers must seek permission for new quota once their slice has been exhausted. According to DB, based on investor demand and other factors, the authorities upsize quota levels at regular intervals. The fund monitors its quota on a daily basis and aims to remain prepared for any change in quota level.

Like PEK, ASHR tracks the CSI 300 index, a benchmark that consists of 300 of the largest and most liquid securities trading on the Shanghai and Shenzhen Stock Exchanges. Financials get the maximum exposure and make up for 39.5 percent of the index. Industrials (13.6 percent), consumer discretionary (13.5 percent) and consumer staples (12.5 percent) also receive double-digit allocations while materials, energy, utility, telecom and information technology receive single-digit funds and make up for the rest.

The fund has an annual expense ratio of 1.08 percent while trailing 12 months’ dividend yield of the underlying index has been 2.41 percent.

Disclosure: No holdings

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