Van Eck launches what seems to be the third China A-Shares ETF

After MorganStanley's CAF and iShares' FTSE/Xinhua A50, VanEck seems to be the 3rd player in the market with their A-Shares ETF. Please note that I'm not recommending investing in China at this stage. This ETF might actually be a really good way of shorting this market that I believe to be highly overvalued.

From IndexUniverse.com:

Van Eck, the New York-based money management firm [...] is adding [...] an ETF that taps into China A-shares, pioneering a strategy that has been largely off limits to U.S. investors until now.

The Market Vectors China ETF (NYSEArca: PEK) will give investors front-row access to the performance of the China A-share market through the use of swaps and derivative instruments while tracking the CSI 300 index, which is comprised solely of China A-shares securities.

China A-shares are securities from mainland China-based companies, and have been mostly off limits to foreign investment and tightly regulated by the government. But ongoing financial reforms that aim to improve foreign investment in mainland companies are slowly making A-shares more accessible.
[...]
The Chinese equities market represents roughly a third of the market cap of all emerging market equities, and China’s A-shares represent 72 percent of all China equities and 24 percent of all emerging markets equities, according to data provided by Van Eck.

PEK, by mirroring the performance of the A-shares market, hopes to broaden investor access to various sectors of the Chinese economy as well as achieve a wider representation of domestic themes.

Until now, foreign investment in China was largely restricted to B-shares—a dollar-denominated version of mainland securities—as well as to H-shares, which trade in Hong Kong and other exchanges. But those limitations, Van Eck argues, have led to underweighting of China in emerging markets and in BRIC strategies.

The fund, which in its initial stages will be comprised of swaps and derivatives, will eventually hold actual A-Share securities after Van Eck receives a Qualified Foreign Institutional Investor (QFII) status, Van Eck’s managing director of ETFs Adam Phillips said in a conference call Friday.

The QFII system is a tightly regulated structure put in place by the Chinese government to control foreign investment in mainland companies. Van Eck’s approval is pending, but the company has no timeframe for when that might happen.

While switching from swaps into the actual securities will improve the company’s financing costs for the fund, the switch should not impact PEK’s performance or investors, Phillips said. PEK comes with an expense ratio of 0.72 percent.

Van Eck first filed paperwork with the Securities and Exchange Commission for PEK in March 2009.

As for the two other ETFs I mentioned, I just found this blog post that provides a comparison of the two:

CAF is US listed denominated in US$, iShares FTSE/Xinhua A50 China Tracker is HK listed denominated in HK$ (2823.HK) and traded as pink sheet in US (IFXAF.PK).

IFXAF is a passive index tracking fund, the Fund's objective is to track the performance of the FTSE/Xinhua China A50 Index. The Fund invests in Chinese A-Shares Access Product (CAAPs) issued by a connected person of QFII as underlying investments.

CAF is actively managed and invest directly in Chinese A-share with its allocated QFII (Qualified Foreign Institutional Investor) quota, its fund manager is supposed to exercise his strategy to pick stocks to beat the index.