Yves Choueifaty, Tobam
The strategy, which the firm brands as “Anti-Benchmark”, seeks a greater diversification of portfolios than that of mainstream market cap benchmarks. It aims to ultimately avoid the risk biases that more traditional allocation methods such as market-cap weighting can lead to, according to Yves Choueifaty, CEO of Tobam.
“Today’s global indices are biased in terms of market capitalisation,” Choueifaty told FSA. “Our goal is to create a portfolio as little biased as possible. It means showing a similar correlation to all main risk drivers, so that every risk factor would evenly contribute to the overall risk,” he explained. He noted that the level of bias may vary depending on the region.
The benchmark created for the strategy is based on the family of CSI indices, which track companies listed on Shanghai and Shenzhen stock exchanges.
The strategy will include the companies in the CSI 800 Index, which combines the CSI 300 Index and the CSI 500 Index. The CSI 300 Index includes the largest 300 companies listed in Shanghai or Shenzhen. The CSI 500 Index follows small-cap Chinese companies, so the two indices do not overlap.
Bejing-headquartered China AMC is the manager of the strategy. It is also responsible for distribution in China and across Asia while Tobam will be the distributor to the rest of the world.
The existing client base of the French firm is predominantly from the US, which accounts for around 60% of clients, according to Choueifaty. Tobam also sources clients from Northern Europe, Middle East and Asia.
In the summer this year, the MSCI will add China A-shares to its widely-tracked emerging markets indices. In the first stage, a total of 222 large-cap stocks listed in Shanghai or Shenzhen will be included in the MSCI Emerging Markets Index from May 2018. Their initial weighting will be 0.73% of the index.
These A-shares will also be included in the MSCI All Country World Index (ACWI) with a 0.1% weighting, and MSCI Asia ex-Japan Index with a 0.83% weighting.
Ken Peng, investment strategist for Asia-Pacific at Citi Private Bank, said in an earlier media briefing that the inclusion will result in foreign capital inflows, boosting China’s onshore market. The initial stage of inclusion will account for only 0.08% of the index composites, which is far below the 11% of A-share market capitalisation in the global equity market.
Choueifaty said he expects that the inclusion will increase investors’ needs for strategies in Chinese equities, and that the new product will be attractive for non-domestic investors who want an access to China’s equity market.
Xiaodong Tang, CEO of China AMC, said in a statement that the firm is keen to develop smart-beta strategies to respond to the demand from investors in China. “Chinese clients have shown interest in various smart-beta strategies with pre-defined screening and weighting rules that overlay simple exposure to equity classes,” he said.
The Paris-headquartered Tobam runs only one strategy – “Anti-Benchmark” − since 2006 when it was initially established as an asset management arm under Lehman Brothers. The firm was re-formed by former staff of Lehman Brothers Asset Management France after the parent firm went bankrupt, triggering the global financial crisis in 2008.
At the end of 2017 Tobam managed $9.5bn in assets, in 13 Luxembourg-domiciled mutual funds, a majority of which invest in equity markets globally, data from FE shows. The firm has launched two Asian equity products: the Tobam Anti Benchmark Pacific Ex Japan Markets Equity Fund and the Tobam Anti Benchmark Japan Equity Fund.
Three-year performance of the Tobam Anti Benchmark Pacific Ex Japan Markets Equity Fund versus its benchmark MSCI Pacific ex Japan and its sector