ETFS-E FUND MSCI CHINA A GO UCITS ETF OPENING THE DOOR TO CHINA S DOMESTIC EQUITY MARKETS CHINA SHARE ETF SECURITIES EMPOWERING INVESTMENT IDEAS

Transcription

1 ETFS-E FUND MSCI CHINA A GO UCITS ETF OPENING THE DOOR TO CHINA S DOMESTIC EQUITY MARKETS CHINA SHARE ETF SECURITIES EMPOWERING INVESTMENT IDEAS

2 China is going through a metamorphosis, increasing the size of its economy fifteen-fold and transforming itself into the world s second largest economy in just twenty years. This process is far from complete. The country is in the midst of an economic and financial transformation that is expected to build wealth at around five times the pace of most developed economies over the next ten years. 1 As the world s most populous country, the expected doubling in average wealth per person over the next decade presents a tremendous opportunity for China s rapidly growing private sector. China s domestic A-share markets provide investors with direct exposure to Chinese companies that will benefit from this growth. 1 Source: World Bank and OECD. Historical China nominal GDP in local currency terms. China s per capita GDP in US dollars is forecast to double over the next decade, while per capita GDP in the OECD is expected to grow by a cumulative 20% over the same period.

3 ETF Securities in co-operation with E Fund, one of China s largest and most respected asset management companies, is pleased to be at the forefront of opening China s domestic equity markets up to European investors, by creating Europe s first physically replicating UCITS exchange traded fund (ETF) tracking the MSCI China A Index. ETFS-E FUND MSCI CHINA A GO UCITS ETF EXCHANGE CODE CASH

4 4 ETFS-E FUND MSCI CHINA A GO UCITS ETF (CASH) KEY FACTS CHARACTERISTICS PHYSICALLY REPLICATING UCITS ETF COMMENTS This UCITS ETF, by providing direct access to local China equity markets denominated in RMB through the RQFII programme, is able to be backed by physical holdings of domestic equities listed on the Shanghai and Shenzhen Stock Exchanges. This is unlike synthetic ETFs which do not have direct access to the local markets. TRACKS THE MSCI CHINA A INDEX The MSCI China A Index has outperformed other major China A-share indices whilst demonstrating lower volatility. 2 The index covers the most comprehensive range of Chinese stocks, with less concentrated exposure to financials and large-cap state enterprises. It also provides a precise building block for eventual inclusion of A-shares in the MSCI Emerging Markets Index and an access point for funds benchmarked to it. COMPETITIVE PRICING This UCITS ETF has a competitive Total Expense Ratio (TER) compared to other China A-share ETFs in Europe and significantly lower than actively managed China funds. STRONG PARTNERS E Fund is one of China s largest 3 and most respected asset management companies with significant experience managing RQFII and China ETFs, while ETF Securities is one of Europe s largest and most experienced exchange traded product providers. 2 Volatility based on 5 years daily returns to 31 December Based on E Fund s asset ranking in China

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6 6 WHAT ARE CHINA A-SHARES? China A-shares are the shares of companies incorporated in mainland China and traded in Shanghai or Shenzhen, quoted in Chinese Renminbi (RMB). Their stocks are restricted to domestic investors mainly and also a limited number of qualified foreign investors through the Qualified Foreign Institutional Investor (QFII) or Renminbi Qualified Foreign Institutional Investor (RQFII) programmes. As a result, foreign investors and ETFs typically invest in offshore stocks listed in Hong Kong and the US. ETFS-E Fund MSCI China A GO UCITS ETF (CASH) gives investors direct access to the China A-share market through the RQFII programme. TYPE CURRENCY EXCHANGES ELIGIBLE INVESTORS A-shares RMB Shanghai and Shenzhen stock exchanges B-shares USD; HKD Shanghai and Shenzhen stock exchanges H-shares HKD Hong Kong Stock Exchange Red chips HKD Hong Kong Stock Exchange P chips HKD Hong Kong Stock Exchange Chinese domestic investors; RQFII and QFII quota holders Foreign investors All investors All investors All investors ADRs & N-shares USD NYSE All investors

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8 8 WHAT IS RQFII? RQFII stands for Renminbi Qualified Foreign Institutional Investor. This scheme was launched in 2011 in order to provide foreign investors access to the physical China A-share market with offshore RMB. International investors have limited access to A-shares and physical access is restricted to QFII and RQFII license holders. Most international investors access Chinese stocks via derivatives, B-shares, or offshore stocks such as H-shares and Red chips traded in HK. With the RQFII programme, qualified foreign asset managers are permitted to manage physically replicating A-shares ETFs which invest directly in Chinese domestic shares. Before this dooropening programme, ETFs listed outside mainland China could only access the market through synthetic replication. WHY INVEST IN CHINA A-SHARES? Per capita wealth in China is expected to double over the next ten years, presenting huge opportunities for China s companies. Despite periodic fears of a hard landing and possible credit crisis in 2013, China managed to maintain a healthy 7.7% pace of growth over the course of the year. Real GDP growth has decelerated from the unsustainable 10-12% levels of to a more sustainable 7-8% growth rate now. The Chinese equity market has had to adjust to this lower growth rate over the past two years, but in our view most of this adjustment has now occurred. Most analysts and the Chinese government expect China to grow in the 7-8% range in A-shares are generally the cheapest in PE terms they ve been since the 2008 global financial crisis. China equities have underperformed developed market equities over the past few years and valuations reflect this. With the Chinese government committing itself to accelerated economic reform and financial liberalisation at its watershed Third Party Plenum in November 2013, economic growth stabilising in a more sustainable 7-8% range and China s equity market capitalisation still low relative to the size and importance of its economy, we believe China A-shares have excellent long-term prospects. CHINA A-SHARES PRICE/EARNING RATIO (X) Dec 97 Dec 98 Dec 99 Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Shanghai Composite MSCI China A Source: Bloomberg, data to 31 December 2013

9 ETF SECURITIES 9 WHAT ARE THE ADVANTAGES OF TRACKING THE MSCI CHINA A INDEX? The MSCI China A Index has the broadest and most comprehensive A-share stock coverage, with strong historical outperformance compared to other A-share benchmarks. It also has the least overlap with China offshore stock indices. Over the past five years (to 31 Dec 2013), the MSCI China A Index has been the strongest performing China A-shares benchmark index, outperforming both the CSI 300 and FTSE China A50, whilst at the same time demonstrating lower volatility. MSCI CHINA A INDEX PERFORMANCE VS CSI 300 AND FTSE CHINA A50 INDICES (REBASED) year returns 3 year returns 1 year return 5 year volatility MSCI China A 49.6% -18.9% -1.2% 24.1% CSI % -18.9% -4.9% 24.4% FTSE China A % -15.9% -12.2% 24.3% Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 MSCI China A CSI 300 FTSE China A50 Source: Bloomberg, data to 31 December 2013 The MSCI China A Index has a lower concentration of exposure to financials and large-cap state-owned enterprises than other major China A-share indices (see table on following page) and a higher exposure to consumer, industrial and health care sectors. In addition, MSCI s target representation approach to index construction is viewed as a more effective way to capture the fast changing landscape of the China A-share market than indices that fix the number of constituent stocks such as the CSI 300 and the FTSE China A50 indices. Fixed stock representation can lead to unintended sector concentrations in a market evolving as quickly as China s. The MSCI China A Index also has the advantage of being part of the MSCI family of indices, meaning that only the MSCI China A Index can be seamlessly integrated with the MSCI Emerging Markets Index once China A-shares are included in the benchmark. On end-2013 data, it is estimated that China A-shares could make up to 13% of the MSCI Emerging Markets Index once included (current estimates are that inclusion may begin in 2015). With around US$1.4 trillion tracking the MSCI Emerging Markets Index, that would equate to approximately US$180 billion of emerging markets tracking funds needing to gain exposure to China A-shares. The MSCI China A Index provides the perfect building block for this exposure.

10 10 COMPARISON TABLE OF CHINA EQUITY INDICES CHINA A-SHARES OFFSHORE CHINA SHARES MSCI CHINA A FTSE CHINA A50 CSI 300 MSCI CHINA FTSE CHINA 25 HANG SENG CHINA ENTERPRISE CATEGORY A-shares only A-shares only A-shares only H-shares, B-shares, Red chip, P chip H-shares, Red chip, P chip H-shares # CONSTITUENTS MARKET CAPS Large and Mid Large Large Large and Mid Large Large SECTOR WEIGHTINGS Financials 33% 64% 38% 39% 56% 63% Industrials 16% 6% 14% 7% 0% 3% Consumer Discretionary 12% 9% 12% 5% 2% 4% Materials 9% 2% 8% 3% 2% 4% Health Care 9% 2% 7% 1% 0% 2% Consumer Staples 7% 8% 7% 6% 0% 1% Information Technology 5% 1% 4% 11% 9% 0% Energy 5% 5% 5% 14% 16% 20% Utilities 3% 1% 3% 4% 0% 2% Telecommunication Services 1% 1% 1% 11% 14% 2% Others 0% 0% 0% 0% 0% 0% HIGHEST WEIGHTING STOCK China Merchants Bank (A) Ping An Insurance Company of China (A) Ping An Insurance Company of China (A) China Mobile China Construction Bank Corp Bank of China Index Weight 2.8% 7.5% 3.7% 8.5% 10.0% 10.3% 5 YEAR VOLATILITY 24.1% 24.3% 24.4% 24.79% 26.84% 27.88% 5 YEAR CORRELATIONS WITH MSCI World FTSE Eurostoxx S&P Source: Bloomberg, index provider websites, data to 31 December 2013

11 ETF SECURITIES 11 PRODUCT INFORMATION FUND NAME BENCHMARK ETFS-E Fund MSCI China A GO UCITS ETF MSCI China A Net Total Return (Ticker: MBCN1A) London Stock Exchange: CASH LN (USD); CASE LN (GBP) LISTINGS AND TICKERS Xetra: CASH GY (EUR) Euronext: CASH NA (EUR) Borsa Italiana: CASH IM (EUR) (See ETF Securities website for additional listings) ISIN UCITS DOMICILE IE00BHBFDF83 Yes Ireland TER (%) 0.88% BASE CURRENCY REPLICATION DISTRIBUTION ISSUER INVESTMENT MANAGER SUB-INVESTMENT MANAGER CUSTODIAN LOCAL SUB-CUSTODIAN STOCK LENDING USD Physical replication (optimised) Accumulating GO UCITS ETF Solutions Plc (formerly ETFX Fund Company Plc) GO ETF Solutions LLP (formerly ETFX Investment Management LLP) E Fund Management (Hong Kong) Co. Limited BNY Mellon Trust Company (Ireland) Limited HSBC Bank (China) Company Limited No Source: ETF Securities

12 12 A STRONG PARTNERSHIP CHINA SHARE ETFS-E FUND MSCI CHINA A GO UCITS ETF EXCHANGE CODE CASH

13 ETF SECURITIES 13 CONTRIBUTING COMPANIES ETF SECURITIES Promotes the fund and monitors fund performance. Leading ETP provider in Europe. One of the largest independent ETP providers in the world. Expertise in multiple asset classes including equities, commodities and foreign exchange. E FUND MANAGEMENT (HK) SUB-INVESTMENT MANAGER Manages the portfolio and replicates the benchmark. Regulated by HK Securities and Futures Commission and approved by the Central Bank of Ireland as investment manager. One of the largest RQFII quota holders. The group is the leading asset manager in China. Expertise in China market and index funds.

14 14 IMPORTANT INFORMATION This financial promotion has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited ( ETFS UK ) which is authorized and regulated by the United Kingdom Financial Conduct Authority ( FCA ). The products discussed in this document are issued by GO UCITS ETF Solutions Plc (the Issuer ), an open-ended investment company with variable capital having segregated liability between its sub-funds and is organised under the laws of Ireland as a public limited company. The Issuer has been authorised by the Central Bank of Ireland (the Financial Regulator ) as a UCITS pursuant to the European Communities (Undertaking for Collective Investment in Transferable Securities) Regulations, 2003 and shall issue a separate class of shares (the Shares ) representing each sub-fund. The Shares discussed in this document are issued by the ETFS-E Fund MSCI China A GO UCITS ETF (the Fund ). This communication constitutes an advertisement within the meaning of Section 31 para. 2 of the German Securities Trading Act (Wertpapierhandelsgesetz WpHG); it is not a financial analysis pursuant to Section 34b WpHG and consequently does not meet all legal requirements to warrant the objectivity of a financial analysis and is also not subject to the ban on trading prior to the publication of a financial analysis. No investment advice: ETFS UK is required by the FCA to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this financial promotion relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit. United States information: This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof, where none of the Issuer or the Shares are authorised or registered for distribution and where no prospectus of the Issuer has been filed with any securities commission or regulatory authority. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States. Neither the Issuer nor any securities issued by it have been or will be registered under the United States Securities Act of 1933 or the Investment Company Act of 1940 or qualified under any applicable state securities statutes. No guarantee of accuracy: This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant, guarantee or otherwise confirm the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this financial promotion make no warranties or claims of any kind relating to such data. Historical performance is no indication of future performance: Any historical performance included in this document may be based on back testing. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. However, back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. No offer for sale: The information contained in this financial promotion is neither an offer for sale nor a solicitation of an offer to buy securities. This financial promotion should not be used as the basis for any investment decision. Risk Warnings: The Shares are products involving a significant degree of risk and may not be suitable for all types of investor. Any decision to invest should be based on the information contained in the prospectus of the Issuer (or any supplements thereto) which includes, inter alia, information on certain risks associated with an investment. The price of any securities may go up or down and an investor may not get back the amount invested. Securities are priced in US Dollars and the value of the investment in other currencies will be affected by exchange rate movements. Prospectus: Investors should refer to the section entitled Risk Factors in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer. The information in this document is designed solely for use in Denmark, Finland, France, Germany, the Republic of Ireland, Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom and complies with the regulatory requirements of these jurisdictions only, and is not intended for residents of any other countries. The distribution of the prospectus and the offering, sale and delivery of Shares in other jurisdictions may be restricted by law. For Dutch investors: The Fund has been registered with the Netherlands Authority for the Financial Markets following the UCITS passport-procedure pursuant to section 2:72 of the Dutch Financial Supervision Act. For French investors: The Issuer is a UCITS governed by Irish legislation and approved by the Financial Regulator as UCITS compliant with European regulations although may not have to comply with the same rules as those applicable to a similar product approved in France. The Fund has been registered for marketing in France by the Authority Financial Markets (Autorité des Marchés Financiers) and may be distributed to investors in France. Copies of all documents (i.e. the prospectus, the simplified prospectus, any supplements or addenda thereto, the latest annual reports and the memorandum of incorporation and articles of association) are available in France, free of charge, at the French Centralizing Agent, Société Générale, Securities Services, at 29 Boulevard Haussmann Paris France. Any subscription for Shares of the Fund will be made on the basis of the terms of the prospectus, the simplified prospectus and any supplements or addenda thereto. For German investors: The offering of the Shares of the Fund has been notified to the German Financial Services Supervisory Authority in accordance with section 132 of the German Investment Act. The prospectus, the simplified prospectuses, any supplements or addenda thereto, copies of the Memorandum and Articles of Association of the Issuer and the annual and semi-annual report can be obtained free of charge upon request at the Paying and Information Agent in Germany, HSBC Trinkaus & Burkhardt AG, Königsallee 21-23, Düsseldorf. The current offering and redemption prices as well as the net asset value and possible notifications of the investors can also be requested free of charge at the same address. In Germany the Shares will be settled as co-owner shares in a Global Bearer certificate issued by Clearstream Banking AG. This type of settlement only occurs in Germany because there is no direct link between the English and German clearing and settlement systems Crest and Clearstream. For this reason the ISIN used for trading of the Shares in Germany differs from the ISIN used in other countries. For Norwegian Investors: The Issuer and the Fund have been registered with the Financial Supervisory Authority of Norway (Finanstilsynet), and may be marketed and sold to professional investors in Norway. For United Kingdom investors: The Fund is a recognised scheme under section 264 of the Financial Services and Markets Act 2000 and so the prospectus may be distributed to investors in the United Kingdom. Copies of all documents (i.e. the Prospectus, the simplified prospectus, the latest previous annual reports and the memorandum of incorporation and the articles of association) are available in the United Kingdom from Third parties: The ETFS-E Fund MSCI China A GO UCITS ETF referred to herein is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to ETFS-E Fund MSCI China A GO UCITS ETF or any index on which ETFS-E Fund MSCI China A GO UCITS ETF is based. The Prospectus contains a more detailed description of the limited relationship MSCI has with the Issuer and ETFS-E Fund MSCI China A GO UCITS ETF. The MSCI sourced information is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an as is basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates. May 2014

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16 ETF SECURITIES (UK) LIMITED 3 Lombard Street London EC3V 9AA United Kingdom T +44 (0) E info@etfsecurities.com W etfsecurities.com