MarketGrader will begin offering smart beta indexes in
China, betting funds using the strategy will become as popular
among the Chinese as theyve been in the U.S.
A smart beta
index consists of companies identified by a set of rules
that screen for certain stock characteristics such as value or
growth to produce returns. Funds using the investment strategy
have proliferated in the U.S., in a smart bid to
beat market value indexes such as the Standard &
a stock research firm based in Coral Gables, Florida, will
begin providing smart beta indexes in partnership with China
Securities Index Co. in May. Theyll start with the CSI
MarketGrader China A-Shares 200 Index and the CSI MarketGrader
China A-Shares New Economy Index, which are designed to
identify financially strong companies using a proprietary,
growth-at-a-reasonable-price stock selection method
in the worlds second largest economy.
Carlos Diez, founder and chief executive officer of
MarketGrader, says the firm started building its research
coverage of companies in China four years ago, positioning
itself to enter the nations investment management
industry, which started as recently as 1998. According to
Morningstar, there was just $256 million invested in smart beta
exchange-traded funds in mainland China in June 2016, compared
to close to $500 billion in the U.S.
The gap between those two numbers is a great
opportunity for us, Diez said in an interview.
Chinese investors are still speculators. But we know that
will change and we wanted to be there early.
While smart beta isnt yet popular in China, the
country already has $63 billion invested in exchange-traded
funds, according to Morningstar.
Diez says asset managers in China are highly aware of the
U.S. trend toward smart beta investments, and many are ready to
bet that Chinese investors will prefer smart beta over simple,
market-value-weighted funds. Starting next month, asset
managers can license MarketGraders smart beta indexes
tracking Chinese companies, according to Diez, who says
sovereign wealth funds and insurance companies are likely to
embrace the new investment product.
Best known for its Barrons 400 Index, MarketGrader
uses a range of fundamental research measures to sift through
stocks. The firm offered its first smart beta index, which
ranks companies based on 24 indicators, in 2003. The advantage
of smart beta is that the index can be customized to avoid
certain types of securities.
MarketGrader is not the first smart beta index provider in
China, where funds must use
CSI-listed benchmarks. Rob Arnotts Research
Affiliates has a business in Hong Kong called Rayliant Global Advisors
that offers smart beta investments customized for the Asian