Passive Pitfalls and Active Alpha in China ETFs

Presented by

Phillip Wool, PhD Managing Director & Head of Investment Solutions, Rayliant

About this talk

Chinese stocks produced one of the strongest returns of major equity markets in 2020, a welcome result for those betting on China’s rapid economic growth and low correlation with other global markets. On top of a compelling beta story, roughly 85% of trading in China is done by amateur retail investors, leading to rampant mispricings and the potential for intelligent strategies to yield large behavioral alpha. At the same time, mainland China’s markets carry an array of special risks, from questionable accounting and often confusing regulations to state-owned companies with weak governance and poor performance—the quintessential value traps. As China’s economy becomes “too big to ignore”, ETF investors looking for exposure will need navigate these unique challenges and opportunities. In this talk, Phillip Wool, Rayliant’s Head of Investment Solutions and a portfolio manager of Rayliant’s Quantamental China Equity ETF (RAYC), will explain why active management is an essential piece of the investing puzzle for Chinese stocks. Phillip will cover the pitfalls of passive ETF design in a retail-dominated market with a nuanced investment landscape, and explain how an active approach to building ETFs for China A shares manages risk and exploits behavioral bias to fully capture the benefits Chinese equities have to offer.

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