CSOP Asset Management has filed with the Securities and Exchange Commission to launch an currency-hedged China A-Shares exchange traded fund to mitigate the negative effects of a depreciating renminbi.
According to a recent SEC filing, CSOP Asset Management is crafting the CSOP MSCI China A International Hedged ETF, which will try to reflect the performance of the MSCI CHina A International Hedged Index. No ticker or expense ratio have been provided.
MSCI publishes the real time index level (Ticker: M7CNAIR) on Bloomberg and Reuters, updated throughout the day.
The fund will track Chinese A-Shares securities listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange, targeting large- and mid-cap A-shares. Additionally, the ETF will neutralize exposure to the fluctuation of the RMB relative to the USD by selling renminbi forward contracts at the one-month forward rate.
U.S. investors can gain foreign exposure through global ETFs. However, most international stock ETFs track equities denominated in their local currencies, so the funds are exposed to currency risks – a depreciating foreign currency means that the ETF would generate a lower USD-denominated return.
However, the currency-hedged strategy helps diminish the negative impact of changes in the value of the RMB relative to the USD. Consequently, the RMB-hedged ETF could have higher returns than an equivalent non-hedged ETF when the RMB is depreciating against the USD. On the other hand, the currency-hedged ETF may underperform an unhedged version if the RMB appreciates against the USD.
The Chinese currency has been strengthening so far this year. Year-to-date, the WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB) rose 2.2%, Market Vectors Chinese Renminbi ETN (NYSEArca: CNY) advanced 3.3% and CurrencyShares Chinese Renminbi Trust (NYSEArca: FXCH) gained 0.8%.
The ETF provider also offers its own non-hedged China A-Shares ETF, the CSOP FTSE China A50 ETF (NYSEArca: AFTY). AFTY began trading on March 12, 2015 and has increased 17.4% since its inception.
Chinese A-Shares are a specific class of equity securities issued by Chinese companies and denominated in RMB. Under current Chinese regulations, foreign investors may access A-Shares if they are a designated foreign institutional investor or gained access through either the Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) programs. CSOP Asset Management Limited is a licensed RQFII and QFII.
For more information on new fund products, visit our new ETFs category.
Max Chen contributed to this article.