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DB Index Research -- ETF Investment Considerations for Asian Investors
March 24, 2010--Highlights
The global ETF/ETP market has grown at an extremely fast pace over the past five years. In December 2009, Assets Under Management (AUM) of US and European ETPs crossed the one trillion US dollar mark.
While the Asian ETF market is still in its infancy, we believe that a number of forces are building to bring it to a tipping point that will result in accelerated growth rates. Increased coordination among regulators in Asia, a larger range of ETF products and increased use of beta index products are some of the factors which will propel Asia’s ETF market growth in the next year.
Physical replication and synthetic replication are two of the most common structures used in the construction of ETFs. Physically replicated ETFs buy all or a representative portion of the underlying securities in the index that they track. In contrast, ETFs employing synthetic replication use a basket of collateral securities, which bear no resemblance to a fund’s index’s constituents, and a total return swap, as part of their investment holdings. The total return swap holding will ensure that the fund replicates the performance of the underlying index.
Most of the US ETFs utilize physical replication, while European ETFs use both physical and synthetic replication. Each structure has a number of relevant considerations that need to be understood.
We conducted a study comparing the performance of both US and European domiciled ETFs tracking Asian benchmarks. We found that synthetic ETFs tracked their benchmark better than physically replicated ETFs for all of the indices examined.
The tracking difference is especially apparent for physical replication of broad indices, such as the MSCI Emerging Markets, for which optimized baskets are used. Optimization entails sampling techniques to physically replicate an index, often leading to a basket that might include significantly fewer constituents, thus introducing a major source of tracking error. Unlike physically replicated ETFs which face such practical replication challenges, the performance of synthetic ETFs is not impacted by the sampling issue.
In addition to tracking difference we have observed that European and US ETFs have different tax implications when it comes to dividend treatment. European domiciled ETFs are generally more tax efficient for Asian investors as dividends of US domiciled ETFs are taxable in the US.
As the US ETF market is larger, and often more competitive, than the European market, we have observed that ETF bid/ask spreads tend to be tighter in the US. Therefore, in the short term holding US domiciled ETFs is more cost effective. In the long term however, for those ETFs that have larger tracking errors associated to them, European domiciled ETFs might prove to be more effective, since US ETFs utilize physical replication which we have observed to have higher levels of tracking error associated with its holding. US dividend tax treatment also reinforces this conclusion.
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Source: DB Index Research
TSE to launch first Dividend Index futures market in Asia
March 23, 2010--Tokyo Stock Exchange, Inc. (TSE), one of the leading global exchanges and the largest securities market in the Asia-Pacific region, today announced the launch of first dividend index futures market in Asia which is scheduled for July 26, 2010. The underlying indices for the futures contracts are as follows;
Nikkei Stock Average Dividend Point Index
TOPIX Dividend Index
TOPIX Core30 Dividend Index
TSE will begin calculation and publication of the Dividend Indices for TOPIX and TOPIX Core30 in June, 2010. (For more information, please refer to the attached "Contract Specifications for TSE Dividend Index Futures".)
While Dividend Swaps have been actively traded in the OTC markets, their history is still a short one of about 5 or 6 years. However, the market has expanded all over the world and we understand the daily trading value in Japanese OTC market has reached several billion yen. Considering the dividend amount paid from Japanese stocks has reached the scale of several trillion yen, the market is likely to develop further. Also, in European exchanges, dividend index futures contracts are gathering considerable attention from investors not only as hedging tools for dividend exposure, but also as a new investment vehicle which differs from current listed derivatives.
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Source: Tokyo Stock Exchange
Investment Fund on the NASDAQ-100 Index Launches in China
Guotai NASDAQ-100 Fund is the First Foreign Index-Linked Financial Product in China
March 23, 2010--The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced today that the NASDAQ-100 Index® is the benchmark for the first foreign index-linked financial product in China. The Guotai NASDAQ-100 Fund was recently opened for subscription by Guotai Asset Management Co., Ltd., one of the original asset managers in China, and is now available to investors in China.
"Amid growing demand for overseas products, investors in China now have exposure to 100 of the world's largest and most dynamic non-financial companies including Baidu, Apple, Microsoft and Google," said John Jacobs, Executive Vice President, NASDAQ OMX. "The Guotai NASDAQ-100 Fund is based on an index that statistically shows favorable return, volatility, and correlation characteristics that may contribute beneficially to Chinese equity dominated portfolios."
Guotai has an exclusive licensing agreement with NASDAQ OMX to use the NASDAQ-100 Index in the development of financial products in China.
"We view the NASDAQ-100 Index as a cornerstone to our international business strategy of bringing innovative investment opportunities to local investors," said Ms Xu Jin, General Manager, Guotai AMC.
The NASDAQ-100 Index is one of the most widely watched indexes in the world and the basis of nearly 1700 investment products in more than 37 countries, including the PowerShares QQQ Trust (Nasdaq:QQQQ), one of the world's most actively traded exchange-traded funds. The Index includes 100 of the largest domestic and international non-financial securities listed on NASDAQ based on market capitalization. The index reflects companies across major industry groups including computer, biotechnology, health care, telecommunications and transportation. To access a list of NASDAQ-100 companies, visit https://indexes.nasdaqomx.com/weighting.aspx?IndexSymbol=NDX&menuIndex=
To view a presentation about the NASDAQ-100 Index, visit http://www.brainshark.com/nasdaqomx/vu?pi=281648643
Source: NASDAQ OMX
Goldman Sachs becomes trading, clearing member of SGX securities market
March 22, 2010--Goldman Sachs has become a trading and clearing member of the Singapore Exchange (SGX) securities market.
Goldman is currently a trading and clearing member of the SGX derivatives market.
The company's Southeast Asia chairman David Ryan said the expansion of its securities business in Singapore is an important part of the growth of its Asian business.
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Source: Channel Asia News
Trading in Units of Benchmark Mutual Fund - Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES)
March 22, 2010--In terms of provisions of Rules, Bye-laws and Regulations of the Stock Exchange, the Exchange can permit dealings in any security under the “permitted securities category” on the Exchange.
Accordingly, Trading Members of the Exchange are hereby informed that effective from Thursday, March 18, 2010 the Units of Benchmark Mutual Fund - Hang Seng Benchmark Exchange Traded Scheme (Hang Seng BeES), an open-ended scheme, will be permitted for trading on the Exchange in the list of B Group.
The details of the Scrips are as follows:
Name of the Mutual Fund: Benchmark Mutual Fund
Name of the Asset Management Company: Benchmark Asset Management Company Pvt. Ltd.
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Source: Bombay Stock Exchange
Motilal Oswal Asset Management Company files for ETF
March 19, 2010-On March 4, 2010-Motilal Oswal Asset Management Company Limited filed a draft offer statement with the SEBI for
MOSt Shares M50 - Motilal Oswal ETF
The investment objective is
The Scheme seeks investment return that corresponds (before fees and expenses) generally to the performance
of the MOSt 50 Index (Underlying Index), subject to tracking error.
view filing
Source: Securities and Exchange Board of India (SEBI)
Kenedix to Invest $332 Million in Real Estate Funds Standard & Poor's Licenses S&P 500 to Bosera Asset Management For ETF Development in China read more DB Index Research -- Weekly ETF Market Review -- Asia Pacific
Assets Under Management
To request a copy of the report OSE - Request for Public Comments: Revisions of Futures and Options Trading Rules view the Additional Revisions of Futures and Options Trading Rules with Introduction of New Derivatives Trading System (Draft) If you are looking for a particuliar article and can not find it, please feel free to contact us for assistace.
March 18, 2010--Kenedix Inc., Japan’s biggest publicly traded real estate asset manager, said it will invest 30 billion yen ($332 million) in Japanese properties this year through two new funds, to take advantage of price declines.
The Tokyo-based firm is in talks with several investors including Korean pension funds to start a 10 billion yen-fund in the first half of this year, Kenedix President Atsushi Kawashima said in an interview yesterday in Tokyo. The second fund will start with about 20 billion yen by the end of the year and aims to grow to 100 billion yen within 12 months, he said. Kenedix shares closed at their highest in seven weeks.
Source: Bloomberg
March 18, 2010-- Continuing to open new avenues of investing for Chinese investors, Standard & Poor's, the world's leading index provider, announced today that it has licensed the S&P 500 to Bosera Asset Management for the creation of an exchange traded fund (ETF) based upon the Index. With nearly $1 trillion directly indexed, the S&P 500 is the world's most followed stock market index.
"In the past twelve months, product providers have launched over 32 ETFs in 6 global markets based upon Standard & Poor's family of indices," says Alexander Matturri, Executive Managing Director at S&P Indices. "We are excited to now license Bosera Asset Management, one of the leading asset managers in China, to create an ETF based upon our flagship index, the S&P 500. This landmark agreement will allow Chinese investors to directly track the returns of the U.S. equity market while providing an important index solution for their portfolio."
Source: CNN Money
March 17, 2010--Market Overview
There are 206 equity based ETFs in the Asia Pacific region with 283 listings across 12 countries and 15 exchanges. Japan has the largest market share by AUM accounting for 41.41% of the whole market, whilst China has the largest market share by turnover with 35.38%.
There was one new listing in the last week. Deutsche Bank AG listed the first UCITS III ETF on MSCI Indonesia on Singapore Stock Exchange. The fund, which offers the cheapest option to the Indonesian Market, became the third fund tracking the Indonesian Economy. The other two peers are listed in the US and in Indonesia itself.
Turnover
Monthly average daily turnover declined 7.8% in the last week. Turnover for the previous week was USD 686m. The largest ETF by turnover was the China 50 ETF issued by China Asset Management with USD 139m accounting for 20.3% of total turnover.
AUM remained at about the same level in the previous week. AUM as of March 15th were USD 60.4bn. The largest ETF by AUM is the TOPIX ETF managed by Nomura Asset Management with AUM of USD 6.3bn.
Source: Aram Flores and Shan Lan -DB Index Research
March 17, 2010--OSE will introduce a new derivatives trading system, which is scheduled to be launched in the first quarter of 2011.
From the viewpoint of improving convenience for investors, OSE will make
additional revisions of futures and options trading rules, such as abolishment of
lunch-time break.
Source: Osaka Securities Exchange
