Investors’ thirst for accessing China’s A-shares equities via the Deutsche X-trackers Harvest CSI 300 China A-Shares Fund (NYSEArca: ASHR) and the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap Fund (NYSEArca: ASHS) has prompted Deutsche Asset & Wealth Management to limit creations of new shares in the ETFs.
Heavy demand, for ASHR in particular, is forcing the two ETFs to bump up against their respective Renminbi Qualified Foreign Institutional Investor (RQFII), which allows the funds to purchase A-shares equities.
“Effective immediately, the Funds will accept one creation unit, comprised of 50,000 shares, each day per Fund,” said Deutsche Asset & Wealth Management in a statement.
Deutsche and Harvest Global Investments, China’s second-largest asset manager and the sub-advisor on ASHR and ASHS, are working with “Chinese authorities to obtain an increase in RQFII quota to keep in-line with investor demand,” according to the statement.
One ETF trading desk said it is possible spreads will widen in ASHR as a result of the limited creations. Deutsche noted that there can be no assurances its RQFII quota will be increased or that any increase, if it happens, will be enough to meet investor. However, the firm also said “this interim creation limit is expected to be temporary.”
Redemptions in the two ETFs will continue to be accepted as usual.
ASHR debuted in early November 2013 and has raced to almost $435 million in assets under management, making it not only one of the most successful ETFs to launch last year, but also the largest U.S.-listed A-shares ETF. [A-Shares ETFs Stand Tall]
Investor interest in A-shares has been strong enough over the past year that Deutsche was able to trim ASHR’s expense ratio to 0.82% per year soon after the ETF’s launch. The German banking giant has also indicated it could expand its lineup of A-shares ETFs to include sector funds.
ASHS, which debuted in May, has $6.4 million. The ETF was the first to trade in the U.S. focusing exclusively on A-shares small-caps. ASHS has a RQFII quota of 100 million renminbi while ASHR’s is 3.25 billion renminbi, according to Deutsche data.
Investors looking to maintain exposure to ASHR and ASHS while creations are temporarily limited can also opt for the new Deutsche X-trackers Harvest MSCI All China Equity Fund (NYSEArca: CN). CN debuted at the end of April and its top-two holdings are an almost 42% allocation to ASHR and an 8.2% weight to ASHS.
Deutsche X-trackers Harvest CSI 300 China A-Shares Fund
