TOBAM, a Paris-based research driven quantitative asset manager and founder of the Maximum Diversification approach, and China Asset Management Company (ChinaAMC), have formed a strategic partnership to develop a new Anti-Benchmark China A-shares equity investment strategy.
The announcement that China’s A Shares will be included in the MSCI Emerging Markets benchmarks by 1 June, 2018 has increased investors’ needs for core strategies in Chinese equities.
The Anti-Benchmark China strategies will seek to maximise diversification across the CSI indexes (CSI 300, CSI 500 & CSI 800 universes) by applying TOBAM’s patented Maximum Diversification approach, which is designed to avoid the risk biases that more traditional allocation methods such as market-cap weighting can lead to.
ChinaAMC will leverage their expertise and privileged access to the Chinese A-Shares equity markets and complement this with TOBAM’s research capabilities and unique Anti-Benchmark approach.
The strategy could prove a compelling solution for large, sophisticated institutional investors, well aware of the limitations of the market cap-weighted indices and actively looking for options to invest more efficiently. Also, the Anti-Benchmark CSI 300, CSI 500 and CSI 800 Equity strategies are potentially attractive for non-domestic investors who believe in the Chinese growth story but would like to access it in a diversified way that notably seeks to mitigate the risk concentrations that are to be found in the CSI indices.
Like in other markets, the implementation of the Maximum Diversification approach in the China A-Shares equity investment universe aims at delivering the risk premium of the asset class via diversification, which seeks to translate into both excess return and reduced volatility vs. the corresponding market cap-weighted index.
“Chinese clients have shown interest in various Smart Beta Strategies with pre-defined screening and weighting rules that overlay simple exposure to equity classes, and we expect these strategies to gain traction. Hence, we are keen to develop Smart Beta Strategies for the Chinese market based on appropriate risk measurements. The collaboration between ChinaAMC and TOBAM incorporates our research efforts to provide investors with a unique investment strategy,” says Xiaodong Tang, CEO of ChinaAMC.
Yves Choueifaty (pictured), CEO of TOBAM, says: “We are proud to partner with ChinaAMC to apply for the first time our Maximum Diversification approach to Chinese A-shares equities. ChinaAMC’s strong knowledge of the local market paired with TOBAM’s research capabilities is a unique combination that we believe offers unprecedented investment opportunities in Chinese equities to investors worldwide.”