Ditch LICs for China exposure: Market Vectors

Ditch LICs for China exposure: Market Vectors

Investors who are concerned that several China A Share listed investment companies are trading at a discount to their net asset value should use ETFs instead, says Market Vectors.


Speaking to InvestorDaily, Market Vectors director for investments and portfolio strategy Russel Chesler said ETFs generally have next to no discount (or premium) to their NAV.

The reason for this, Mr Chesler said, is that ETF providers with less than 1,000 unit holders are required to use 'market makers' to keep the trading price very close to the net asset value (NAV).

However, once an ETF has more than 1,000 unit holders the provider is no longer required use a market maker under the ASX AQUA rules.*

Mr Chesler's comments came as AMP Capital announced a series of measures intended to remedy the 20.4 per cent discount (as of Thursday) between the trading price of the listed investment company (LIC) AMP Capital China Growth Fund and its NAV.

Market Vectors cross-listed its US-listed China A Shares ETF in Australia this year under the ticker CETF.

The China ETF tracks the CSI 300 index, which replicates the performance of the top 300 companies listed on the Shanghai and Shenzhen stock exchanges.

"Investors can look at that index every day, they can know what that index is doing and be comfortable that they’re going to get close to the return that’s close to that index," Mr Chesler said.

That is in stark contrast to the various China A share listed investment companies at the moment, which are trading at between 20 and 30 per cent below their NAV.

"ETFs don’t have this added-in complexity of trying to work out [if] the discount [is] fair, and what’s going to happen to the discount over time," Mr Chesler said.

"That’s one of the disadvantages of a LIC, in that once the units are created they can’t be redeemed and generally unless there’s an IPO there’s not going to be a new offering of new units coming through."

*This article has been amended to reflect the fact that ETF providers are only required to use a market maker if they have less than 1,000 unit holders under the ASX AQUA rules.

 

Ditch LICs for China exposure: Market Vectors
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