Heptagon launches first active, UCITS China A-shares fund

07 August 2014   Category: News, Asia, China, Global, Europe, United Kingdom   By Daniel Shane

Heptagon Capital, a UK-based asset manager with about US$9 billion in AUM, has launched the first actively managed, UCITS-compliant fund to invest in Mainland China A-shares.

Heptagon, founded in 2005, has partnered with China’s Harvest Fund Management Group as sub-investment manager to establish the Harvest China A-Shares Equity Fund.

The Ireland-domiciled fund will target European investors and employ a bottom-up stock-picking strategy, with a long-term outlook based on company fundamentals and invest in high-conviction stocks that trade in RMB. The fund will also offer unhedged US$, euro and UK sterling share classes.

“This is the first time that an actively managed, well-performing strategy from a leading domestic asset manager in China has been launched for UCITS investors with daily liquidity,” commented Fredrik Plyhr, founding partner at Heptagon.

He added that China A-shares, listed on the Shanghai and Shenzhen stock exchanges, had a higher weighting to consumer services and goods compared to Hong Kong-listed H-shares. Mr. Plyhr said that these two sectors were closely-linked to China’s domestic consumption theme.

“With the Shanghai composite trading at the cheapest level on record, relative to the MSCI Emerging Markets Index, we feel that the timing of this pioneering product will prove opportune for our all stakeholders," Mr. Plyhr added.

In recent months two major indices providers have opted against the inclusion of A-shares into their global benchmarks. In June, MSCI decided not to accept Mainland equities into its emerging markets index, raising concerns over accessibility, given that investors may not have a RQFII or QFII quota that is sufficient to match the potential benchmark allocation. MSCI also expressed misgivings over limitations on capital mobility and uncertainties regarding capital gains tax.

S&P Dow Jones Indices reached a similar decision regarding its own benchmarks following a consultation with global investment managers and bankers. It also raised concerns over quota requirements and currency repatriation.