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Smart beta ETF from Hong Kong firm offers exposure to GARY

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Hong Kong-based Enhanced Investment Products (EIP) has launched its first smart beta product that seeks to capitalise on exposure to globally listed Asia Pacific ex. Japan stocks with strong dividend yield and earnings growth.

 Founded in 2001, EIP has approximately USD$400m under management and its ETF business, XIE Shares, is  49 per cent owned by Hong Kong brokerage and research firm CLSA. The Growth At a Reasonable Yield (GARY) index, which XIE Shares CLSA GARY (3102.HK) ETF tracks, is based on extensive proprietary research from CLSA’s quant team.
 
Tobias Bland, CEO of EIP, explains that his firm started with ETFs based on emerging Asian economies, from the Philippines to China, but in 2015, it moved from that base to launch Chimerica, an ETF based on large cap Chinese internet firms, listed in the US, most of which are scheduled for inclusion into the MSCI China and EM index on November 30, 2015.
 
Chimerica has some USD28 million in assets from a full spectrum of investors. “It fits investors who want access to China’s fastest growth area which is not represented in the benchmarks, currently underweight technology,” Bland explains. “The inclusion of these is significant.”
 
EIP recognised that institutional investors were increasing their weighting alongside the MSCI benchmark. “Investors were opting to spread their opportunities out further in buying Chimerica” Bland says, “it’s a realistic option for large asset managers at this point in time.”
 
The themes around GARY, EIP’s new smart beta ETF offering, are not new as it has been a popular benchmark for institutional clients of CLSA for the last ten years. The firm uses quant filters to find stocks that meet two sets of criteria, Bland explains. They are looking for companies that are delivering over a 3% dividend yield with strong earnings growth measures, relative to their peers. Beyond that there are another range of filters and rules based screening processes before a potential stock is included in the index.
 
The reaction to GARY has been a recognition that it is a unique product. “ETFs are primarily retail driven products,” Bland says, “but GARY offers a better form of wrapper for a thematic index from CLSA so we are seeing a lot of institutional interest. Now clients can buy just one single stock that matches this underlying basket.”
 

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