Invesco is expanding its offering for investors wanting exposure to China by launching two ETFs, one focussed on the largest companies and the other on the mid-cap segment.
The Invesco S&P China A 300 Swap UCITS ETF and Invesco S&P China A MidCap 500 Swap UCITS ETF are designed to offer the potential structural advantages provided by the firm’s synthetic replication model.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, says: “China already boasts the second-largest equity market in the world, and it’s increasingly diverse. Our ETFs aim to provide investors an opportunity to be more precise with their exposure. For example, if they wish to focus on companies driven by domestic consumption, they’re more likely to find them in the mid-cap space, whereas larger companies tend to have more international exposure.”
The Invesco S&P China A 300 Swap UCITS ETF aims to track the performance of an S&P index that comprises 300 of the largest stocks on the A-shares market, while the Invesco S&P China A MidCap 500 Swap UCITS ETF tracks an index comprised of the next-largest 500 stocks. Both indices focus only on the shares of companies incorporated in mainland China and traded in Renminbi on the Shanghai and Shenzhen stock exchanges. Unlike some competing benchmarks, both indices remove companies on the Office of Foreign Assets Control (“OFAC”) Sanctions List.
Each ETF will aim to achieve its investment objective by holding a basket of quality securities and engaging in swap contracts with one or more large investment banks. The securities are typically not the same as in the index but are expected to provide an investment return for the ETF. The swaps would normally be intended to provide closer, more consistent tracking of the index return.
Chris Mellor, Head of EMEA Equity and Commodity ETF Product Management at Invesco, says: “The dynamic of China’s onshore equity market can offer a structural advantage for synthetic replication. Quant desks and hedge funds running market-neutral strategies don’t have access to traditional methods for hedging the market risk, so they often use index derivatives written by banks. Our ETFs may sometimes benefit from favourable conditions in the swap markets, although the potential outperformance of the index will fluctuate and is not guaranteed.”
Michael Orzano, Senior Director of Global Equity Indices at S&P Dow Jones Indices says: “We are very pleased that Invesco has licensed the S&P China A 300 Index and S&P China A MidCap 500 Index for its new exchange-traded funds. We’re proud to offer independent and transparent indices to global market participants who are seeking targeted exposures to onshore Chinese equities. A-shares have grown in importance to international investors, and these indices have been designed to capture this important market segment.”
These two ETFs follow last year’s launches of the Invesco China All Shares Stock Connect UCITS ETF and the Invesco China Technology All Shares Stock Connect UCITS ETF.