Bosera Asset Management has raised US$200 million for what it claims to be China's first exchange traded fund (ETF) with a sustainable development focus, backed by strong interest from institutional investors at home and in the Americas.
The asset manager, China's second-biggest fund house by asset under management, excluding money-market funds, wrapped up its global marketing for the fund last week.
Strong interest from institutional investors, including "two or three" hedge funds from overseas, as well as investors from Argentina, has led Bosera to consider setting up feeder funds offshore to cater to foreign investors' demand, said Steve Wang, deputy head and portfolio manager at Bosera's passive and quant investment department.
The fund, called "Bosera CSI Sustainable Development 100 ETF", tracks the CSI Sustainable Development 100 index, run by the China Alliance for Social Value Investing (CASVI). CASVI develops quantitative assessment models for sustainable financial products in China and is chaired by banking veteran Ma Weihua, former president of China Merchants Bank.
CASVI states on its website that its Sustainable Development 100 index has delivered an annualised return of 4.3 per cent above the CSI 300 index, over the five years to July 2019.
"One should think about sustainable development being a broader thematic investing approach on top of the ESG (environmental, social and governance). It's also a way for achieving enhanced returns from the CSI 300 Index," said Wang.
The new sustainable fund is scheduled to list on the Shanghai Stock Exchange next month, though the exact date is not yet known. It will add to Bosera's existing 80 billion yuan (US$11.7 billion) ETF portfolio, part of an overall portfolio of 1.07 trillion yuan in assets under management.
According to data on the CASVI website, some of the top ranking A shares companies - Chinese domestically traded stocks - that score highly on its sustainable development model include Hangzhou Hikvision Digital Tech, China State Construction Engineering Corp, Agricultural Bank of China and China Yangtze Power. These are all constituents of the CSI 300 index.
Apart from profitability, the rankings of CASVI's top 100 stocks are based on certain societal contributions made by the companies. Factors such as enforcing employees' rights, providing a safe operating environment, providing value to customers, and environmental impact are considered.
"Through an ETF, investors should benefit from better transparency of the underlying portfolio companies being tracked. The fees should also be lower than an actively-managed fund," said Wang. The management fee for this fund is 0.5 per cent, compared to 1.5 per cent for active funds, he added.
Wang was speaking on the sidelines of the "Asia Futurist Leadership Summit" organised by the Association of Family Offices in Asia, in Hong Kong last week. He said if the Hong Kong stock exchange eventually launches an ETF connect scheme, similar to its existing stock connect schemes, Bosera would be keen to expand the investor pool for its ETFs via the mutual market-access mechanism.
Last week, Julia Leung Fung-yee, deputy chief executive of the Securities and Futures Commission, said the Hong Kong regulator has resumed discussions with Chinese counterparts about the possibility of an ETF connect, which would enable investors in Hong Kong and China to buy ETFs listed on each other's exchanges. The plan was initially shelved in 2018.
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