Chinese fund manager lists an ETF on London Stock Exchange

Representatives from Fullgoal Asset Management, London Stock Exchange and other partner organizations applaud the listing of an Exchange Traded Fund on the London Stock Exchange on Tuesday [Photo/provided to China Daily]

China's Fullgoal Asset Management listed an exchange traded fund on the London Stock Exchange on Tuesday, giving global investors a channel by which to invest in China's onshore bond market opportunities.

ETFs are marketable securities that track underlying assets like index, commodity or bonds, and are traded like a common stock on a stock exchange.

The ETF meant Fullgoal is the first Chinese asset manager to launch an ETF on the London Stock Exchange by itself. Previously ETFs listed on LSE are issued either by Western institutions, or through partnerships between Chinese and Western institutions.

Michael Chow, head of international business and managing director of Fullgoal Asset Management, said the ETF is an attractive product for European investors as it gives them access to China's fixed income market, which is the world's third largest and provides higher yields compared to bonds in Europe.

As the renminbi gains its reserve currency status by joining the International Monetary Fund's basket of Special Drawing Rights currencies, global investors are expected to rebalance their portfolios by increasing renminbi exposure. As China's onshore bond market is still not completely open to foreign access, access through products such as the Fullgoal ETF would be an attractive option, Chow said.

The Fullgoal ETF has already attracted about 15 million euros ($17 million) of investment from offshore investors, and its size is expected to grow based on further market demand. It was listed on June 15 on the Luxembourg Stock Exchange, and it will also list on Milan's Borsa Italiana on June 23.

The Fullgoal ETF tracks the FTSE China Onshore Sovereign and Policy Bond 1-10 Year Index, which is an index created by FTSE Russell, the wholly owned index business of the London Stock Exchange Group. The Index, created in 2013, tracks the performance of renminbi bonds, including those issued by the Chinese government, China Development Bank, Agricultural Development Bank of China and The Export-Import Bank of China.

Fullgoal is the first asset manager to receive the license to launch an ETF tracking the Index, leveraging on its understanding of the Chinese market and its RQFII (Renminbi Qualified Foreign Institutional Investors) quota. The ETF is a fund that passively tracks the performance of the Index, by purchasing China's onshore bonds with the correct proportion that reflect the index, which investors cannot invest in directly.

Sudir Raju, managing director of Exchange Traded Products at FTSE Russell, said the fact that Fullgoal launched the ETF independently is significant, because the Fullgoal management's direct interaction with institutional investors will help build up investor confidence in the ETF.

Raju said one key benefit of investing in ETFs that track the Index is the high return it produces, resulting from higher yields of bonds in China.

The current UK government 10 year gilt has a return of 1.4 percent. Since 2014, the yield of Chinese bonds have increased significantly. As of the end of Quarter 1 in 2016, the yield of 10 year sovereign bond was around 3 percent while the yield of 10 year policy bank bond is around 3.3 percent.

In addition, the weak correlation between the Chinese and UK bond markets means investors that buy into the Fullgoal ETF will gain diversification from their existing investment portfolios.

Nikhil Rathi, chief executive of London Stock Exchange and group director of international development, added that the listing is particularly significant.

"Chinese issuers are increasingly looking to access European investors. In choosing to list this ETF … Fullgoal has shown that London Stock Exchange Group is the partner of choice for Chinese issuers looking to access European investor capital," said Rathi.

To contact the reporter: cecily.liu@mail.chinadailyuk.com