FTSE Russell has licensed two new short and leveraged China 50 indices to ETF Securities, which listed 3x daily short and 3x daily long versions on Borsa Italiana on November 3. Assets under management (AUM) linked to FTSE Russell China indices stands at US$23bn, according to Sudir Raju (pictured), managing director, ETP relationships, Europe, Middle East & Africa, at the index provider.

“Investors and market participants are looking for tools and products that can be used within their asset allocation models, and this is why the leverage/short version of the index is popular,” said Raju. “Short & leverage products have been in the market for 10 years, but are not totally understood and more investor education is required. These strategies are not suitable for buy-and-hold products, as they are aimed at tactical asset allocation,” he said.

The benchmark index comprises the 50 largest and most liquid Chinese stocks listed and trading in Hong Kong. “We have recently included China A-shares in a transition variation of the FTSE Emerging Markets Index, and Vanguard (in the US market) has announced that it is migrating some of its ETFs to this benchmark,” said Raju. “The FTSE China 50 was licensed in the US to iShares, the largest US ETF provider, but this is the first time we have licensed a FTSE China index in Europe. Given that it is not possible to track the whole of the Chinese onshore market, one way to get similar exposure is the FTSE China 50, which includes the majority of companies listed in Shenzhen and Shanghai.”

The indices are calculated assuming a defined leverage multiple, either long or short, which is then applied to the underlying reference index. The leverage is reset daily. “We believe a 3x factor is an appropriate leverage/short factor and FTSE Russell does not intend to bring any indices to the market with higher leverage,” said Raju. “The index is reset on an intraday basis if the markets are volatile and that is a risk investors need to understand.”

The short and leveraged indices were also designed to be used as an underlying for index-linked products including structured products, although they are more suitable for tactical and opportunistic trades, according to Raju.

Related stories:
FTSE Russell rolls out new smart beta series as Source readies tracker
Boost ETPs deploys leveraged/short FTSE indices
FTSE launches low vol RAFI series
FTSE licenses OMGxT with alternative weighted indices