Rolle im Portfolio
This fund provides exposure to many of the largest and most liquid components of the Chinese equity universe, which has become a global titan and an important part of a globally balanced portfolio. The Chinese economy now ranks second largest in the world, behind only the United States.
The FTSE China 50 Index contains companies listed on the Stock Exchange of Hong Kong (Red Chips, P Chips and H shares) and is heavily tilted towards the financial sector, which make up around 50-60% of the index’s value. Individual constituents are capped but diversification at the security level is limited, with more than 60% of the portfolio within the top 10 names. Most of the top 10 names are state-owned enterprises (SOEs), which sometimes put political interests (e.g. GDP growth or employment targets) ahead of profitability.
The fund passes along dividends from underlying stocks to unitholders in a quarterly distribution, so this fund might suit an investor seeking moderate levels of income.
Fundamentale Analyse
As the world’s second largest economy, China no longer posts the double-digit numbers of the last decade, but its GDP growth is still noteworthy, surpassing 7% in 2012, 2013 and 2014.
China has done well as the manufacturer of the world, but its growth has relied on consistent demand from developed markets. As the financial crisis showed, demand from the West greatly impacts China’s economy, and reduced aggregate demand has taken a long-term toll on the manufacturing industry. China’s Purchasing Manager Index (PMI), which indicates the strength of the manufacturing sector, fell from 55 in the mid-2000s to nearly 40 in 2008. After a brief rebound in 2009, it has remained around 50 since mid-2013, which is considered subpar. Factory output has also been at a six-year low, further raising concerns.
China’s foreign currency reserves reached $4 trillion in 2014, equivalent to the value of its entire equity market. The excess reserves could cushion a potential credit crisis and reduce the risks associated with cheap money. But as of late, international pressure to use the reserves to strengthen the renminbi has increased. Since being unpegged from the U.S. dollar in 2005, the renminbi steadily appreciated by over 30% before the People’s Bank of China allowed a slight weakening early in 2015.
Currency manipulation can suppress investor speculation in the short-term, but China’s government has recognised the need for a more balanced economy in the long-term, adopting reforms intended to increase domestic consumption and reduce dependence on fixed investments and exports. Already, consumer spending accounted for over half of GDP in 2014. But the transition will be gradual, not least because of the slow speed of reforms.
An area of concern, however, is China’s slowing housing market, which accounts for 15% of China’s economy. Home sales slowed abruptly in 2014, after home prices reached all-time highs for five consecutive years which had stoked fears of a housing bubble. In response, the government enacted plans to spark increased activity, including lower interest rates and unorthodox discounts on new homes.
Indexkonstruktion
In September 2014, FTSE extended the FTSE China 25 Index into a 50 stock index and renamed it the FTSE China 50 Index. Index migration was completed in December 2014. The FTSE China 50 Index is a free float market capitalisation-weighted index consisting of the top 50 stocks by market capitalisation trading on the Stock Exchange of Hong Kong. The constituents are made up of H-shares, P Chips and Red Chips. 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. P Chips are companies incorporated outside the PRC but with at least 50% of their revenue or assets derived from mainland China. They are controlled by Mainland Chinese individuals, with the establishment and origin of the company in Mainland China. 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 by far make up the largest sector of the index, representing 45-55% of its total weighting. Other significant sector weights include energy (14-17%) and telecommunications (10-15%). The top holdings are Tencent Holdings (9-11%), China Mobile (9-11%), China Construction Bank (7-10%), Industrial and Commercial Bank of China (6-8%) and Bank of China (5-7%).
Fondskonstruktion
The fund uses full physical replication to try to capture the performance of its benchmark, owning – to the extent possible and efficient – shares in all of the underlying constituents in the same weights as those of the index. The fund uses futures for cash equitisation purposes, which helps to limit tracking error. In the 12 months through the end of December 2014, an average of 20.37% of the portfolio was out on loan, up to a maximum of 37.13%. BlackRock, iShares’ parent company and lending agent, passes 62.5% of the gross securities lending revenue to the fund and keeps the remaining 37.5% for itself, out of which amount it will pay the associated costs of the activity. The lending programme added 0.06% of net return to the fund. BlackRock has a 50% cap on the amount of assets that its iShares funds can lend out. To protect the fund from a borrower’s default, BlackRock takes collateral greater than the loan value. Collateral levels vary from 102.5% to 112% of the value of the securities on loan, depending on the assets provided by the borrower as collateral. Additional counterparty risk mitigation measures include borrower default indemnification. Specifically, BlackRock commits to replace the securities that a borrower fails to return, but it will not cover losses incurred on the reinvestment of cash collateral.
Gebühren
The fund’s total expense ratio (TER) is 0.74%, which is pricier than some of the alternatives for exposure to Chinese equities. Other costs potentially borne by the unitholder but not included in the total expense ratio include transaction costs on the infrequent occasions when the underlying holdings change and bid-ask spreads and brokerage fees when buy and sell orders are placed for ETF shares. Income generated from securities lending helps to recoup some of the total costs.
Alternativen
To gain exposure to Chinese equities, there are a few choices, albeit referencing different underlying indices. Non A-share alternatives include Amundi ETF MSCI China, Source MSCI China ETF, Lyxor ETF China Enterprise, db x-trackers CSI300 Index, Deka MSCI China, and HSBC MSCI China ETF. Of these, the ETF with the lowest fees is the db x-trackers CSI300, with a TER of 0.50%.
A few of European providers now offer ETFs with exposure to China’s investable A-shares market including swap-based CSOP Source FTSE China A50 ETF, swap-based Comstage FTSE China A50 ETF, physically-replicated Lyxor Fortune SG UCITS ETF MSCI China A and physically-replicated db-x trackers Harvest CSI300 Index ETF. The ComStage FTSE China A50 ETF has the lowest fees, with a TER of 0.40%.
Although these funds sound similar by name, there are notable differences within the various benchmarks they track. The FTSE China 50 Index is far more concentrated than the MSCI China Index,which has 140 constituents, or the CSI 300. The CSI 300 and the MSCI China also provide broader sector exposure to the country.
