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SHANGHAI/HONG KONG – A major Chinese fund company on Wednesday announced sharp cuts in fees for a range of exchange-traded funds (ETFs), intensifying price competition in the rapidly expanding $400 billion market sector. .
The move, which will cut management and custody fees by up to 70%, comes a day after China's chief securities regulator, Wu Qing, pledged to accelerate fee reform in the index investing and fund industry.
ETFs, which typically track indexes and trade on exchanges, have grown rapidly this year as fund companies compete fiercely to attract investors disillusioned with underperforming active fund managers. The latest fee cuts are expected to potentially attract new capital into a waning bull market, but they will also hurt industry margins.
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“A lower price range for ETF fees is emerging, which could lead to further fee compression in the coming quarters,” fund consultancy Z Ben Advisors said in a note to clients.
“Managers need to adapt and internalize costs to align with policy directions.”
China Asset Management Company (ChinaAMC), the country's top ETF manager, said in a statement: “To reduce investors' wealth, eight ETF products including the 160 billion yuan ($22.1 billion) China SSE50 ETF 510050.SS “We will reduce fees.'' Management cost. ”
Management fees will be reduced by 70% from 0.5% to 0.15%, and custodian fees will be halved to 0.05%.
Fund companies such as E Fund Management, Huatai-PineBridge Fund Management, Harvest Fund Management, and HuaAn Fund Management also issued similar statements.
A car passes over a pedestrian bridge displaying stock information in the Lujiazui financial district in Shanghai, China, on November 7, 2024. (Reuters/Nicochan/Reuters)
Net inflows into China's onshore ETFs have exceeded 900 billion yuan so far this year, on track to record the largest inflows in a decade, according to BNP Paribas.
Chinese stock ETFs, which reached 1.81 trillion yuan at the end of June, have already exceeded 3 trillion yuan. This is a 66% increase in less than five months.
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The boom was helped in part by government money pumped into struggling markets at the start of the year and by a flurry of government stimulus measures for the struggling economy in recent months.
The lower fees will benefit central finance, a sovereign wealth fund that owns more than $100 billion worth of ETFs.
Intense competition for market share has also helped lower fees and attract inflows.
Most active funds were caught off guard by China's sudden stimulus-driven bull market that began in late September, and their conservative positions prevented them from beating the surging index.
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The index traded by China's active equity funds (CSI930890) is up just 3% since the beginning of the year, far behind the benchmark index CSI300 (CSI300), which has risen 16%.
“Active fund managers can't even beat the market and have lost investors' trust,” said Lu Deyong, an individual stock trader in northeastern China. “Retail investors now prefer to place their bets through ETFs.”
According to the official Shanghai Securities News, Chinese passive funds outnumbered active funds in Chinese stock holdings last month.
