DWS has launched an Xtrackers ETF that provides access to large and mid-cap stocks listed on the Shanghai and Shenzhen stock exchanges, the ‘A-shares’ segment of the market that accounts for the majority of Chinese equity market capitalisation.
The Xtrackers MSCI China A ESG Screened Swap UCITS ETF has been listed on the Deutsche Börse and the London Stock Exchange. Listings on other European exchanges are planned, the fund manager said last week.
DWS Group (DWS) is one of the world’s leading asset managers with EUR 902bn of assets under management (as of 31 March 2022). Building on more than 60 years of experience, it is widely used by institutional investors in Germany, Europe, the Americas and Asia.
China ESG ETF launch: what is it investing in?
The ETF tracks the MSCI China A Inclusion Select ESG Screened Index. This is an ESG screened version of the MSCI China A Inclusion Index, which provides exposure to the A-shares segment of the MSCI China Index.
The largest sectors in the MSCI China A Inclusion Select ESG Screened Index are financials (19.1% index weight), consumer discretionary (15.5%) and industrials (14.4%). The share of the largest ten positions in the index, which currently comprises 363 stocks, is 19 per cent (Source: MSCI, May 31, 2022).
The ESG Screened methodology leads to the exclusion of around a quarter of the index members of the MSCI China A Inclusion Index. For example, the stocks of companies that are associated with controversial or nuclear weapons, or that generate more than five percent of their revenues from conventional weapons, tobacco or the extraction of hard coal and oil sands are filtered out. Furthermore, stocks that have received an MSCI ESG rating of ‘CCC’ or that do not comply with the principles of the United Nations Global Compact are removed from the index. The ETF meets the requirement to be classified as a product under Article 8 of the EU Disclosure Regulation.
With the addition of Xtrackers MSCI China A ESG Screened Swap UCITS ETF, DWS now has eight ETFs covering segments of China’s equity market, representing assets under management of around EUR 4.5 billion (Source: DWS as of June 24, 2022). By comparison, assets under management in Xtrackers ETFs on Chinese equity indices amounted to EUR 2.2 billion at the end of 2019.
“China’s A-shares market is still significantly under-represented in many portfolios relative to its importance and growth prospects. The MSCI China A ESG Screened Swap UCITS ETF provides efficient and liquid access to the domestic A-shares market while taking into account fundamental sustainability characteristics.”
Simon Klein, Global Head of Passive Sales, DWS
Timing for the launch could be good as investor confidence could return to Chinese markets if the government can get a handle on the pandemic. There have been prevailing ESG concerns among many investors around China equities, so bringing out a product with an ESG screen is also a sound move, and not the easiest thing to achieve in a less than transparent market. This product should get traction if things start to look better inside China.