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Market Vectors launches ChinaAMC SME-ChiNext ETF

BBR Staff Writer Published 25 July 2014

Market Vectors ETF Trust has launched the Market Vectors ChinaAMC SME-ChiNext ETF, a new fund which seeks to provide exposure primarily to China's market of innovative, non-government owned companies, it was announced.

Through a partnership with ChinaAMC, the fund will invest directly in China A-Shares.

CNXT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the SME-ChiNext 100 Index. This index is intended to track the performance of the 100 largest and most liquid stocks listed and trading on the Small and Medium Enterprise (SME) Board and the ChiNext Board of the Shenzhen Stock Exchange (SZSE). Often viewed as mainland China's NASDAQ, the SME Board was established in 2004 under SZSE and acts as an exchange platform for mainly mature or maturing small- and medium-sized companies in China.

The ChiNext Board, a wholly-owned but independent arm of SZSE, began trading operations in 2009 and has focused primarily on start-ups and growth companies. As of June 30, 2014, a total of 720 companies were listed on the SME Board with a combined market value of $648.58 billion, while 381 companies traded on the ChiNext Board with a combined market value of $298.42 billion1.

ChinaAMC is currently China's largest asset manager in terms of fund assets under management and will serve as sub-advisor to CNXT using a Renminbi Qualified Foreign Institutional Investor (RQFII) quota that it has received to invest in China A-shares. This marks the second ETF for which Market Vectors and ChinaAMC have partnered in this way, joining Market Vectors ChinaAMC A-Share ETF (NYSE Arca: PEK).

"We're very excited to bring a unique vehicle like CNXT to market as part of our growing relationship with ChinaAMC," said Amrita Bagaria, ETF Product Manager with Market Vectors. "The Chinese government appears to recognize that small, non-government backed firms often struggle to access capital because large banks generally do not offer them financing2. As such, the SME and ChiNext Boards were established to help promote private innovation in the public markets3, and this new fund gives investors a liquid, transparent way to gain access to some of these growing companies."

Bagaria added that at the start of 2014, SMEs in China were contributing 60% of the country's GDP, 80% of its employment, and 74% of its technological innovation, according to the World Trade Organization. "The information technology, consumer discretionary and staples, and health care sectors are driving what has been called China's 'New Economy'," said Bagaria. "They are among the top sectors represented in the underlying index for CNXT."

Market Vectors notes that investing in Chinese securities, particularly A-shares, comes with associated risks, which include adviser and sub-adviser risk, risk of the RQFII regime, political and economic instability, inflation, confiscatory taxation, nationalization, expropriation, and market volatility. In addition, the Fund is subject to risks associated with foreign and emerging markets investments including liquidity, valuation, currency, and non-diversification, among other risks. Companies with medium- and smaller-capitalizations are also subject to elevated risks.

Source: Company Press Release