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China’s CSOP debuts oil ETF

After launching an oil futures ETF in Hong Kong, CSOP's next step will be leveraged and inverse ETFs in the SAR.

The CSOP WTI Oil Annual Roll December Futures ER ETF mirrors the BofA Merrill Lynch Commodity extra CLA Index (excess return), which tracks the performance of December month West Texas Intermediate (WTI) crude oil futures contracts traded on the New York Mercantile Exchange.

The firm said its ETF is differentiated because the futures contracts will change once per year instead of monthly.

“The monthly rolling is a more conventional tracking method, but starting in 2011 we saw that all new ETFs which seek beta no longer use the monthly rolling way,” said head of ETF and index solutions Melody He.

To compare, Samsung Asset Management’s S&P GSCI Crude Oil ER Futures ETF, listed on April 29, will track S&P GSCI Crude Oil Index Excess Return – the performance of the front month contracts. Thus rolling occurs every month.

CSOP ETF strategist Alvin Li said an annual rolling strategy can minimise negative rolling yield and transaction costs.

Since 2006, the yearly return of BofA’s annual rolling index has beat its monthly rolling index, the firm said. The former saw outperformance up to 27 percentage points a year during the period of 2006 to 2015.

Ongoing charges are estimated at 1.08% a year for CSOP’s product, and 0.99% for Samsung’s. Li explained the higher expenses were attributed to more operational costs to develop the product.

This ETF targets both institutional and retail investors with a mid- to long-term investment horizon. “We see demand from Chinese investors for alternative assets.”

Bank of America Merrill Lynch, the index provider, expects oil prices to bounce back to $60 a barrel at the end of this year, due to a rebalancing of supply and demand.

Li said the next step for CSOP is to launch leveraged and inverse ETFs in the SAR. “We are looking at products with a focus on emerging markets. We aim to target a more niche investors base,” he said. 

Rival Samsung said earlier that it has submitted applications for two structured ETFs, which would focus on major markets. Mirae Asset Global Investments (Hong Kong) also intends to launch an oil ETF in Hong Kong, sources said. 

Part of Mark Allen.