FTSE Group, one of the largest index providers to sponsors of exchange traded funds, has commenced initial studies into the possibility of including companies with primary listings outside of their home domiciles in FTSE indices.
“The index provider is assessing whether to include companies which trade overseas, but lack a domestic listing, in its global-equity index series,” reports Gregor Stuart Hunter for the Wall Street Journal.
Among the marquee stocks barred from FTSE indices because they are based in one country but have primary listings in another are Chinese Internet giants Alibaba (NYSE: BABA) and Baidu (NasdaqGS: BIDU). Due to the fact that Alibaba and Baidu are Chinese companies with primary listings in New York, neither is included in major ETFs that benchmark to FTSE indices.
That includes the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO), the largest emerging markets ETF by assets, and the iShares China Large-Cap ETF (NYSEArca: FXI). FXI, which tracks the FTSE China 50 Index, is home to $6.1 billion in assets under management making it the largest U.S.-listed China ETF. Last month, FTSE said China ETFs tracking its indices topped a combined $24 billion in assets under management. [FTSE China ETFs top $24B in AUM]
Alibaba’s September 2014 initial public offer, last year’s largest, spurred debate regarding the inclusion of companies with primary listings in a country that is not their home domicile. Along with FTSE, MSCI (NYSE: MSCI) rejected the inclusion of Alibaba in major benchmarks such as the MSCI Emerging Markets Index.
Neither the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) nor the iShares MSCI China ETF (NYSEArca: MCHI) currently include shares of Alibaba or Baidu. However, just days before Alibaba’s IPO, MSCI said it was mulling rules changes that could allow for the inclusion of those stocks and other with similar listing structures in its indices. It is expected that if MSCI approves those rule changes, the changes will not go into effect until March. [MSCI Indices Could Make Room for Alibaba]
S&P Dow Jones was the first of the major index providers to allow for the inclusion of Alibaba in its global benchmarks. The index provider made that announcement prior to the Alibaba IPO and the stock has since appeared in ETFs that track S&P indices such as the $1 billion SPDR S&P China ETF (NYSEArca: GXC).
FTSE decision on the matter could come at any time, the Journal reported. Tencent Holdings (OTC: TCEHY), a key rival to Alibaba and Baidu, is FXI’s largest holding with a weight of 9.3% because the company’s primary listing is Hong Kong.
iShares China Large-Cap ETF