Yuanta JV plans Greater China ETF platform

Taiwan’s largest mutual fund house, Yuanta Securities Investment Trust, has partnered China Resources to set up a joint venture in Shenzhen and will launch a fixed income fund later this year.

China Resources Yuanta also intends to roll out a cross-border exchange-traded fund in late 2014 that will be traded in China, Hong Kong and Taiwan, says Julian Liu, president and CEO of Yuanta.

The cross-border fund will be part of a wider Greater China ETF platform, he adds, although notes the firm wants to test the waters with a more conventional fund first.

“We will launch a more traditional product at first to test the market," Liu tells AsianInvestor. "It is not easy to launch an innovative product when we do not have a track record."

The JV – 49%-owned by Yuanta and 51% by China Resources – aims to raise Rmb1 billion for the fixed income mutual fund in its first year, he says.

Yuanta, with mutual fund assets totalling NT$285 billion ($9.6 billion) at the end of March, is now meeting distribution partners, custodian banks and Taiwanese enterprises to get traction for the fund, which it hopes to roll out by August.

Liu notes that China’s fund market is highly competitive, with as many as 80 fund management companies vying for attention, so it is essential to ensure that distributors find the fund appealing.

“New fund houses always face the problem of how to enter the market. We will listen to distributors’ opinions when we first launch our products,” he says.

After launching the mutual fund, Yuanta plans to start a quantitative and equity segregated-account business, and in the next 18 months, aims to build a Greater China ETF platform, which will allow cross-border trading between China, Hong Kong and Taiwan.

“We plan to build a platform that provides cross-border ETFs in Greater China,” Liu says. “It [will] help us become a Greater China fund house [and] will leverage Yuanta’s ETF capabilities to develop unique products and differentiate ourselves from our peers.

“It also tackles the problem of the high cost of entering a banking distribution channel,” he adds.

But before the cross-border ETF can trade between the three regions, Yuanta needs an renminbi qualified institutional investor (RQFII) licence in Hong Kong and a qualified domestic institutional investor (QDII) licence on the mainland. The company already has a qualified foreign institutional investor (QFII) licence in Taiwan.

Once the RQFII 2, QDII 2 and QFII 2 programmes are launched – which will allow individual international investors to directly invest in China’s market either in RMB or US dollars – the cross-border ETF will offer good exposure, Liu argues.

For example, as the ETF will invest across Hong Kong dollars, RMB and Taiwan dollars, there will be arbitrage opportunities, he notes.

The cross-border ETF, which will be domiciled in all three regions, will likely use the CESC Cross Border Index series as a benchmark.