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Analyse: db x-trackers FTSE China 25 UCITS ETF

China light? Dieser ETF bietet Anlegern einen Zugang zu so genannten H-Shares und Red Chips, die nur ausländischen Investoren offen sind.

Rolle im Portfolio

This ETF offers exposure to many of the largest and most liquid Chinese equities available to international investors. Given its concentrated portfolio, this ETF is best suited as a satellite holding for investors looking for China mega-cap exposures.

Over the past three years, the FTSE China 25 Index has been more correlated to the Asian emerging markets (correlated 89% to the MSCI EM Asia Index) than developed markets (correlated 72% to the MSCI World Index and the MSCI EAFE Index and 66% to the S&P 500 Index). These figures indicate that this ETF could offer some degree of diversification benefit for international investors. It is worth noting that, over the past 3 years, this index has had a correlation of 50% to the MSCI China A Index which tracks the domestic Chinese equity markets, compared to the FTSE China 25 Index which tracks two of the non-domestic Chinese equity markets--H-Shares and Red Chips. Over this same time period, this index has had a standard deviation of 24%. This is higher than the MSCI World Index (17%) but similar to the MSCI EM Asia (22%) and the MSCI China A Index (23%).

From a sector perspective the FTSE China 25 Index is heavily tilted towards the financial sector which represents 59% of the index’s value as of end-February 2013. At the individual security level, the index’s top 10 holdings account for 61% of its value.

Prior to investing in this ETF, we advise investors to check their existing exposure to domestic and non-domestic Chinese equity markets to avoid unintentional concentration. While both the domestic and non-domestic Chinese equity markets are driven by the Chinese economy, the two types of markets could offer different risk/reward profiles and may be subject to different exchange regulations and market forces. Over the past 3 years, on an annualised basis, FTSE China 25 Index returned -0.4% with standard deviation of 24%, while the MSCI China A Index returned -3.8% with standard deviation of 23%.

Fundamentale Analyse

China’s new leaders have come onboard to lead the country for the next 10 years. It appears as though the new leaders will continue liberalising the Renminbi (RMB) and further opening China’s capital market, which should ultimately benefit China as a whole. China’s GDP growth slowed to 7.8% in 2012 from 9.2% in 2011. The government set a target for GDP growth of 7.5% for 2013. While 7.5% growth would mark the slowest pace in 11 years, GDP growth in Q4 2012 was 7.9% YoY, accelerating from the 7.4% rate seen in Q3, and marking the first increase after 7 straight quarters of decline. In addition, at this rate of growth, China will likely continue to be ranked amongst the fastest growing countries in the world.

Chinese policies have in the past had a large influence on the Chinese stock market as a whole as well as specific sectors. We expect the influence to be continued. However, the future direction of interest rate policy, being one of the key policy tools, has been less clear lately since the last rate cut (July 2012) and lowering of the reserve requirement ration (RRR, May 2012) whereas the US, Europe and Japan all extended and expanded their easing programmes in the second half of 2012.

The financials sectors accounts for 59% of the portfolio, the largest sector exposure for the ETF, consisting mainly of Chinese banks (40%). Investors should be aware of any changes to the Chinese banking regulations and the effects it could have on incumbents’ market share. Ping An Insurance, China Pacific Insurance and China Life Insurance (4% each), the largest Chinese insurance companies are also included in the portfolio. The performance of shares of Chinese insurance companies is inherently linked to the domestic China A-Share market itself as insurance companies invest their surplus in local equity markets.

The second largest sector exposure for this ETF is telecommunications, accounting for 17% of the portfolio, including China Mobile (00941) (10%), a telecommunication services giant, which is also the largest component of the ETF’s portfolio. The Chinese telecommunication services industry is subject to local regulation and rapid technological changes.

The third largest sector exposure is oil & gas, accounting for 15% of the portfolio, followed by basic materials (7%).  This exposure consists of oil companies including CNOOC (00883) (6%), PetroChina (00857) (4%) and coal companies such as China Shenhua (01088) (4%). These oil & gas and basic materials companies are not only exposed to global energy prices but also to Chinese regulations in the energy sector and their overseas expansion strategies, if any.

While the underlying stocks are listed in Hong Kong and share prices are quoted in Hong Kong dollar, the businesses derive the majority of their income in Mainland China. As a result, the underlying stocks are indirectly exposed to fluctuations in the Renminbi (RMB).

Overall, investors should be reminded that the Chinese economy could be affected by the global economy and local monetary and fiscal policies.  

Indexkonstruktion

This ETF tracks the FTSE China 25 Index, which is a free float adjusted market capitalisation weighted, liquidity screened index consisting of 25 stocks trading on the Stock Exchange of Hong Kong. The constituents consist of H-Shares and Red Chips with a 10% cap on each constituent. With respect to constituent stocks whose individual weighting exceeds 5%, the weighting of such constituent stocks is capped at 40% in aggregate. H-Shares are companies incorporated in the People’s Republic of China (PRC) and listed in Hong Kong. Unlike China-listed A-shares, there are no restrictions for international investors trading in H-shares. Red Chips are companies incorporated outside the PRC but with at least half their sales coming from mainland China and at least 30% of their shares held by mainland Chinese entities. Stocks are screened for liquidity and selected to represent the largest companies on the exchange. The index is reviewed quarterly and changes are made as needed. Financials make up by far the largest sector of the index, representing 59% at the end of February 2013. Other meaningful sector weights include telecommunications at 17%, oil & gas at 15%, and basic materials at 7%. The top holdings are China Mobile (00941), China Construction Bank (00939), and Industrial and Commercial Bank of China (01398), at weights of 10%, 9%, and 8% respectively.

Fondskonstruktion

This ETF employs synthetic replication to track the underlying index by entering into a funded swap with counterparty Deutsche Bank AG. Investors’ cash is transferred to Deutsche Bank, which then puts collateral in a segregated account pledged to the ETF. As of end-February 2013, the collateral consists mainly of publicly-listed equities, as well as roughly 11% corporate and government bonds. The collateral is marked to market every day, and according to Deutsche Bank its total value as of end-February 2013 was 119% of the ETF’s net asset value. Collateral is subject to certain margins and the amount is required to be 100% to 120% of the exposure. Collateral will be held by the custodian, State Street Bank Luxembourg S.A. Under the terms of the swap, the counterparty agrees to provide the ETF with exposure to the total return of the underlying index, net of any costs or fees associated with providing the exposure. The return from the swap assumes that all dividends paid by the underlying stocks are reinvested in the index, after the deduction of any taxes that may apply. This ETF does not pay out any dividend distributions. The ETF will not enter into stock lending transactions. The fund has assets of roughly US$260m.

Gebühren

The ETF levies a total expense ratio (TER) of 0.60%. This sits at the low end of the range for ETFs tracking the same or very similar indices. Other costs potentially borne by the unitholder but not included in the TER include swap fees, bid-ask spreads, transaction costs on the infrequent occasions when the underlying index holdings change, and brokerage fees when buy and sell orders are placed for ETF shares.

Alternativen

This ETF domiciled in Luxembourg and is cross-listed in Hong Kong, Singapore and various exchanges in Europe. In addition, there are 4 other ETFs that track the FTSE China 25, including the CIMB FTSE China 25 (0823EA, listed in Malaysia), Hang Seng FTSE China 25 Index ETF (02838, listed in Hong Kong and Taiwan), EasyETF FTSE China 25 (EXC, listed in France), iShares FTSE China 25 (FXC, listed in various exchanges in Europe and Australia; also FXI, listed in the US, Mexico and Chile). Compared to these alternatives, the iShares one is larger as measured by AUM while this ETF, db X-trackers FTSE China 25 ETF, charges the lowest TER.

 

Investors may also consider ETFs that track other non-domestic Chinese market indices, e.g. the HSCEI Index, MSCI China Index and MSCI China H Index.

Über den Autor

Morningstar ETF Analysts  research hundreds of ETFs available to European investors. The Morningstar Rating for ETFs is based on a risk-adjusted performance measure.