Invesco has launched two synthetic China ETFs tracking large and mid-cap A-Shares companies.
The Invesco S&P 500 China A 300 Swap UCITS ETF (C300) and the Invesco S&P China A MidCap 500 Swap UCITS ETF (C500) are listed on the London Stock Exchange, Deutsche Boerse, Borsa Italiana and SIX Swiss Exchange with a total exchange ratio (TER) of 0.35%.
C300 tracks the S&P index that comprises 300 of the largest stocks on the A-Shares market while C500 tracks the next largest 500.
Both will track companies incorporated in mainland China and traded in Renminbi on the Shanghai and Shenzhen stock exchanges, excluding companies on the Office of Foreign Assets Control Sanctions list.
Synthetic ETFs engage in swap contracts with counterparties, usually investment banks, that are required to deliver the return of the index minus fees.
Invesco said the advantages of synthetic ETFs is they can provide “more consistent” tracking of the index return.
Christopher Mellor, head of EMEA equity and commodity ETF product management at Invesco, said: “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 do not have access to traditional methods for hedging the market risk, so they often use index derivatives written by banks.
“The ETFs may sometimes benefit from favourable conditions in the swap markets, although the potential outperformance of the index will fluctuate and is not guaranteed.”
Gary Buxton, head of EMEA ETFs and index strategies at Invesco, added: “China already boasts the second-largest equity market in the world, and it is increasingly diverse. The 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 are more likely to find them in the mid-cap space, whereas larger companies tend to have more international exposure.”
It is the latest launch by the US giant offering exposure to China after it unveiled the Invesco China All Shares Stock Connect UCITS ETF (MCHN) and the Invesco China Technology All Shares Stock Connect UCITS ETF (MCHT) last year.
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