Quick Take: China Approves First Publicly Offered ‘Fund of Funds’ Products

China on Friday approved its first batch of publicly offered fund of funds (FOF) products after accepting applications 10 months ago.

Six securities firms said the China Securities Regulatory Commission (CSRC) had given them the green light to set up mutual-fund FOFs, which invest in other funds rather than directly in companies, stocks and bonds.

The six firms are China Asset Management, China Southern Fund Management, Manulife Teda Fund Management, Harvest Fund Management, HFT Investment Management and CCB Principal Asset Management.

To qualify as a mutual-fund FOF, they must have at least 80% of assets invested in CSRC-approved publicly offered funds. The main advantage of FOF investing is the reduction of risks through diversification.

China Asset Management’s publicly offered FOFs will create an investment portfolio based on target volatility, the securities firm said.

China Southern Fund said it will pursue an “all weather” strategy that uses diversification and hedging to create a group of investments that are designed to perform well in various market conditions.

The CSRC released regulations on mutual-fund FOFs in September and started to accept applications from securities firms on Nov. 29. On the first day, the securities regulator received 22 applications. By Aug. 25, the securities regulator received 56 applications for mutual fund FOFs, according to its official website.

Current regulations allow mutual-fund FOFs to be invested in qualified domestic institutional investor (QDII) funds, but not Chinese Mainland-Hong Kong Mutual Recognition Funds, structured funds, or funds invest in stock index futures, government bond futures or stock futures.

Contact reporter Liu Xiao (liuxiao@caixin.com)