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ICBC launches mutual fund indices in China

Industrial and Commercial Bank of China (ICBC) introduced two indices tracking baskets of mutual funds, in anticipation of the approval of fund-of-funds (FoF) products by China's regulators.


ICBC launched the CSI ICBC Equity & Hybrid Fund Index and the CSI ICBC Dynamic Allocation Fund Index on 12 July.

ICBC, the world’s largest bank by assets, partnered with China Securities Index, a joint venture of the Shanghai and Shenzhen stock exchanges, to compile the two indices, according to the bank’s statement. (in Chinese)

The indices are meant to serve as benchmarks for individual investors’ asset-allocation portfolios and to solve their problem of having to choose from thousands of mutual funds available in the market, the statement said.

The CSI ICBC Equity & Hybrid Fund Index aims to provide relative returns. It will contain at most 50 equity-focus funds. Equity or hybrid funds in China can usually invest no more than 50% in other assets such as bonds.

“This index is designed to select mutual funds that best suit the market environment at the moment. More experienced investors, or those with monthly investment plans can use it as a reference,” the statement noted.

The CSI ICBC Dynamic Allocation Fund Index looks for absolute returns among equity, bond and money market funds. The weighting of funds investing in these three asset classes will shift based on market performance of bonds and equities.

This dynamic index can serve as a reference for investors who invest a fixed amount of money for the long term, the bank said.

Index constituents

Mutual funds that are eligible for inclusion in the indices have to be actively managed, have at least one year of track record and RMB 100m ($14.5m) of assets under management, according to a CSI document.

The constituents of the index are then selected based on scoring analysis which takes into account factors related to fund houses, portfolio managers and individual products in different weightings.

The indicative portfolio of the CSI ICBC Equity & Hybrid Fund Index, as of June 20, consisted of 29 mutual funds from 27 fund houses, among them: UBS SDIC, China Universal, Bosera, Harvest, Invesco Great Wall and ICBC Credit Suisse.

The CSI ICBC Dynamic Allocation Fund Index consisted of 15 mutual funds. Three of them are from GF, another three are managed by ICBCCS, and the others come from firms including E Fund, Bosera, Invesco Great Wall, China Southern and UBS SDIC.

Role of funds-of-funds

After China Securities Regulatory Commission gave the greenlight to launch mutual FoF products for retail investors in September last year, fund houses have filed applications for about 70 such products. All are currently pending regulatory approval.

Speaking at the index launch event, Zheng Fushi, deputy secretary of Asset Management Association of China (AMAC), said that commercial banks, as key distributors, are crucial to the development of mutual fund industry in China.

Distributors can make use of FoF products to cater to investors’ wealth management needs for retirement, he noted.

“Distributors have gradually evolved from product selling to providing broader asset allocation service. It is hoped that they can replace the individualistic and speculative investment behaviour, and to introduce stable flow of capital into best-in-class mutual funds,” he continued.

In China, robo-advisors, or those who provide automated portfolio construction, also commonly use mutual funds as building blocks, in contrast to the dominance of ETFs in such services in overseas markets.

Part of the Mark Allen Group.