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Another China ETF pulls out

E Fund Management has become the latest manager in Hong Kong to delist a China-focused ETF, according to a Hong Kong Exchange filing.
Another China ETF pulls out

The last trading day for the E Fund CES China 120 Index ETF is on 28 May. The firm said in a separate statement that it is delisting the fund because of the relatively small assets it had acquired from investors.

The product only has RMB 2.6m ($41,000) in assets, which compares to the two other ETFs the firm manages. E Fund’s Citi Chinese Government Bond 5-10 Years Index ETF has RMB 33.6m in assets, while the E Fund CSI 100 A-Share Index ETF has RMB 98.9m in assets.

FSA sought more information from E Fund Management, but the firm did not comment in time for publication.

The number of ETFs delisted in Hong Kong has been increasing because they have failed to gather satisfactory assets. Last year alone, 10 firms announced that they were delisting 35 ETFs. By comparison, 26 ETFs were delisted in 2016.

However, many delisted products have been have been focused on China A-shares. Among them were Blackrock’s MSCI A International Index ETF, all three ETFs managed by China Universal Asset Management, China Asset Management’s CES China A80 Index ETF, CSOP Asset Management’s CSOP CES China A80 ETF and 10 ETFs from Deutsche Asset Management.

Industry sources are not surprised. China A-share products are a crowded space and only a handful of ETFs have gained traction from investors.

“This is not surprising, given ETFs are a volume game. There is little differentiation across these products, which are tracking the same index. The key difference will be liquidity and fees, which all benefit from scale,” Yoon Ng, Singapore-based director for Asia global market intelligence at Broadridge Financial, told FSA.

In Hong Kong, there are nearly 30 ETFs that invest solely in China A-shares, with assets of around $8bn as of end of February. However, around 90% of these assets are heavily concentrated in just three ETFs, which are managed by Blackrock, CSOP Asset Management and China Asset Management, according to HKEX data.

Echoing Ng, Mohamed M’Rabti, Euroclear’s Brussels-based head of Fundsettle and ETFs, said that with the lack of differentiation in Hong Kong, investors will tend to crowd into one or two ETFs to get China A-share exposure. He questions why investors would want more options other than the two products with the largest assets. “You will pay less [in fees] for the larger funds.”

Broadridge’s Ng added that there are plenty of channels for investors to invest in China outside of ETFs. For institutional investors, they can get China A-share exposure via direct stock trading using Stock Connect, inbound programmes such as the QFII and RQFII schemes and Bond Connect. For retail investors, the tendency is for them to invest in mutual funds, which have much longer track records.

“And to add to that, ETFs do not offer retrocessions, making them a less attractive product to distributors,” she said.

In a previous interview, Rebecca Chua, managing partner of Premia Partners, also bemoaned the crowd of similar China A-share ETFs and said her firm sees an opportunity by introducing thematic smart beta ETFs.

Part of the Mark Allen Group.