Lion-China Merchants CSI Dividend Index ETF: In-Depth Investor Report

Key Points for Investors

• Fund Structure: The Lion-China Merchants CSI Dividend Index ETF (“the Fund”) is a Singapore-listed exchange-traded fund (ETF) that tracks the CSI Dividend Index by investing all or substantially all of its assets into the China Merchants CSI Dividend ETF, listed in Shanghai. This makes it a feeder fund.
• Index Composition & Methodology: The CSI Dividend Index comprises 100 Shanghai, Shenzhen, or Beijing-listed A shares selected for (i) high cash dividend yields, (ii) stable dividends, and (iii) adequate scale and liquidity. Constituents are weighted by their dividend yields, with a cap of 10% per constituent and 0.5% for those with market values below RMB 10 billion.
• Investment Strategy: The Fund seeks to replicate the Index performance by investing in the underlying ETF, which itself tracks the Index using a full replication strategy, but can invest up to 10% in non-Index securities. The Underlying Fund may also use derivatives, margin trading (up to 140% leverage), and securities lending, increasing both potential returns and risk.
• Liquidity & Trading: Units are traded on SGX-ST in SGD and CNH. Designated market makers (Phillip Securities and China Merchants Securities Investment Management HK) provide liquidity, but market prices may deviate from net asset value (NAV), especially during periods of volatility or if trading on the relevant Chinese exchanges is suspended.
• Expense & Turnover Ratios: As the Fund was launched on 28 March 2025, expense and turnover ratios are not yet available. The Underlying Fund had a turnover ratio of 61.12% in 2024, suggesting active rebalancing.
• Distribution Policy: The Fund intends to declare annual distributions in December, but distribution amounts are not guaranteed and depend on underlying dividend receipts.
• Investment Restrictions: The Fund does not invest in commodities, unlisted securities, or precious metals, and will not engage in securities lending or repurchase transactions. Borrowing is limited to 10% of NAV for up to one month, only to meet redemptions or bridging needs.

Potential Price-Sensitive Information

• Tracking Error & Deviations: The Fund’s returns may deviate from the Index due to imperfect replication, fees, expenses, and the Underlying Fund’s discretion to invest up to 10% in non-Index securities. The Underlying Fund has historically kept daily tracking differences within 0.2% and annual tracking error within 2%, but changes to Index methodology, liquidity issues, or regulatory actions could disrupt this.
• Regulatory Risks: Changes in Chinese regulations regarding foreign investment, Stock Connect, currency controls, or tax policies (including potential retroactive tax liabilities on capital gains or distributions) could impact Fund performance and liquidity. The Fund is exposed to PRC tax risks, foreign exchange controls, and risks associated with repatriation of profits and capital.
• Delisting/Suspension Risks: If the Underlying Fund is delisted by the Shanghai Stock Exchange or if trading is suspended, the Fund may be forced to liquidate or terminate, with potentially adverse price impacts. Similarly, suspension or disruption on the SGX-ST could affect investors’ ability to trade units.
• Concentration/Emerging Market Risks: The Fund is heavily concentrated in China A-shares, making it susceptible to country-specific risks, including political, economic, and regulatory instability, as well as heightened volatility and lower liquidity compared to developed markets.
• Duplication of Costs: As a feeder fund, investors bear both the Fund’s management fees and those of the Underlying Fund, potentially resulting in higher total expenses and lower net returns compared to direct investment.
• Stock Connect Risks: The Fund’s ability to invest via Stock Connect is subject to quota and operational limitations. Disruptions in the system, quota exhaustion, or regulatory changes may impact the Fund’s ability to track the Index or meet redemptions.
• Information Disclosure & Language Barriers: Key disclosures from the Underlying Fund are made in Chinese, with translations provided to Singapore investors. Delays or inaccuracies in disclosure could affect price-sensitive information.
• Risks Associated with ChiNext and STAR Markets: Exposure to stocks listed on these markets entails higher price volatility, overvaluation risks, regulatory differences, and increased delisting frequency, potentially leading to significant losses.
• Operational & Settlement Risks: The cross-border nature of the Fund exposes it to technical, settlement, and operational risks that may impact its NAV or investors’ ability to transact.
• Unitholder Realisation: Units can only be redeemed in large blocks (Application Unit size: 50,000 units or higher, in multiples of 1,000). Small investors must sell on SGX-ST, which may be illiquid during periods of market stress.

Important Information for Shareholders

• Performance Dependency: The Fund’s returns are largely dependent on the Underlying Fund’s performance and management. Shareholders have no control over the Underlying Fund’s investment decisions.
• Distribution and NAV Announcements: NAV is published daily on the manager’s website and weekly on SGXNET. All material information is announced on SGXNET and the manager’s website.
• Potential Delisting or Termination: Any prolonged delisting from SGX-ST or the Shanghai Stock Exchange could force the Fund’s termination, with adverse impact on share value.
• Availability of Information: All audited and unaudited reports, annual and semi-annual, are available online, not sent by mail, but can be requested in print. Investors should monitor these for material updates.
• Tax Risks: Final tax liabilities on Chinese securities held through the Underlying Fund are uncertain, and any under-provisioned tax may reduce NAV. Over-provisioned tax will not be refunded to redeemed shareholders.
• Anti-Money Laundering Compliance: The Manager and Trustee may require identity and source-of-payment verification for all investors, and data may be disclosed to regulators or authorities as required.

Potential Share Price Movers

The Fund’s share price may be significantly affected by:

• Changes to Chinese tax or currency regulations, especially if retroactively applied.
• Suspension or delisting of the Underlying Fund on the Shanghai Stock Exchange.
• Major rebalancing of the Index or changes to its methodology.
• Material tracking errors or inability to replicate the Index performance due to liquidity, regulatory, or operational issues.
• Significant market volatility or government intervention in the China A-share market.
• Changes in Stock Connect rules or quota limitations.
• High expense ratios or duplication of costs reducing net returns.
• Material events or disclosures from the Underlying Fund, especially if delayed or only available in Chinese.
• Any significant changes announced via SGXNET regarding distributions, management, or operational issues.

Disclaimer

This article is intended for informational purposes only and does not constitute investment advice, solicitation, or recommendation. Investors are strongly encouraged to read the full prospectus, consult with their financial advisors, and consider their own risk appetite before making any investment decisions. Past performance is not indicative of future results. The Fund is subject to significant country, market, regulatory, and operational risks. The manager and reporter accept no liability for any actions taken based on the information provided above.

View Lion-CM CSI Div CNY Historical chart here