CSOP sets up New York base, launches smart-beta ETF

CSOP Asset Management is looking to beef up its operations in New York and has listed its first smart-beta product to capture the price difference between mainland and Hong Kong listed Chinese companies.

 

Currently functioning principally as a research and marketing outpost, the plan is to turn the US office into CSOP's first overseas asset management hub.

 

“We want to build an independent and fully operative entity in New York,” Louis Lu, a portfolio manager at CSOP, told AsianInvestor on Tuesday. 

 

Lu relocated to New York from Hong Kong in August, joining two new senior hires, including Matt Collins who joined CSOP in March from Source Exchange Traded Products to head US ETF capital markets. CSOP plans to add two more members to its US team in the next three months.

Having independently listed its flagship FTSE A50 exchange-traded fund in the US in March, the company is now awaiting clearance from the Securities and Exchange Commission to press ahead with its New York plan. 

 

While rivals such as Harvest Fund and GF Fund had chosen to expand their overseas footprint in London, CSOP is looking for a long-term commitment in the US, particularly the ETF market, Lu said.

“Our experience in Hong Kong and Europe may not be applicable in the US, because it is a larger and mature market, particularly its ETF market, [which] is offering different type of products,” Lu said.

“We considered London and Paris but we have built a partnership with Source in Europe already and we want to launch products independently in the US,” he said.

 

CSOP listed a further two ETFs on the New York Stock Exchange on Tuesday, including the China CSI 300 A-H Dynamic ETF, which tracks the CSI300 Smart Index, and MSCI China A International Hedged ETF, which tracks the MSCI China A International Index.

 

The 300 A-H Dynamic ETF is a smart-beta product designed to exploit arbitrage opportunities between China’s A-share and Hong Kong’s H-share markets. The benchmark aims to track the overall return of the CSI300 index but in the case of the 60 companies that are dual-listed it also switches investments between A-shares and H shares, depending on which class of share is cheapest. The aim is to squeeze out some outperformance as the gap in price between A and H shares narrows. 

 

Among the benchmark’s top 10 securities as of September were seven Hong Kong-listed H-shares whose share prices are cheaper than their equivalent A-shares.

Lu said the product idea was initiated by CSOP while working together with the China Securities Index Company. 

 

The fund will invest in mainland stocks via the Shanghai-Hong Kong Stock Connect and using the firm’s quotas as a Renminbi Qualified Foreign Institutional Investor.

 

The firm plans to list a Hong Kong version of this smart-beta fund to be called China CSI300 Smart ETF, according to the authorisation document from the Securities and Futures Commission on October 13. 

 

CSOP had a total RQFII quota of Rmb46.1 billion ($7.3 billion) as of September. At the end of 2014 its assets under management totaled $7.08 billion.