China's 18 fund managers seek approval for active stock ETFs

China's fund industry is on the cusp of its biggest product innovation in five years as 18 managers apply to launch actively managed stock ETFs.

China's fund industry is set to blur the line between active and passive investing after 18 asset managers submitted applications July 17 for the first batch of actively managed stock ETFs, a product structure that combines daily portfolio transparency with zero subscription fees.

"Active ETFs represent the most significant structural innovation in China's fund industry since the launch of index ETFs," said a fund industry executive familiar with the product design, speaking on condition of anonymity because the applications are under regulatory review.

The 18 applications, evenly split between the Shanghai and Shenzhen stock exchanges, include filings from E Fund, China Asset Management, Fullgoal, Harvest, Southern, Penghua, ICBC Credit Suisse and 11 other managers. Nine products target value, balanced or dividend strategies, while two — Yongying's Jingqi Strategy and E Fund's Quality Future — lean toward growth. All received "material received" status from the China Securities Regulatory Commission on the same day.

The product's success could redirect billions of yuan in retail fund flows from traditional over-the-counter mutual funds to exchange-listed products, reshaping a multi-trillion-yuan industry. Under the new framework, managers must disclose their full portfolio daily before market open and publish intraday net asset values, a transparency requirement that marks a sharp departure from the quarterly disclosure typical of conventional active funds.

The innovation addresses two long-standing pain points for Chinese retail investors. First, top-performing active funds frequently close to new subscriptions after strong runs, locking out latecomers. Active ETFs, by trading on exchanges, remain accessible regardless of subscription status. Second, the exchange-traded structure eliminates subscription and redemption fees — which can reach 1.5% for traditional funds — replacing them with brokerage commissions typically around 0.06%.

A Test of Manager Discipline

The daily disclosure requirement introduces a new challenge for fund managers accustomed to operating behind opaque portfolio walls. High-turnover strategies, common among China's active managers, could generate elevated trading costs and create arbitrage opportunities for sophisticated market participants monitoring the published holdings.

"The success of active ETFs will depend on whether managers can adapt their investment processes to a daily-disclosure environment," said the executive. "Those with low-to-moderate turnover and clear style discipline are best positioned."

The CSRC's approval timeline remains undisclosed, but industry participants expect the first products to reach the market within three to six months, pending the standard inquiry-and-response review process. The launch would follow similar product expansions in the U.S., where active ETFs have captured more than $500 billion in assets under management, according to Morningstar data.

For China's fund industry, the stakes are high. Total ETF assets under management have grown rapidly but the pace of inflows has decelerated in recent quarters. Active ETFs offer a potential driver to rekindle investor interest — provided the products deliver on their promise of manager skill combined with ETF efficiency.

This article is for informational purposes only and does not constitute investment advice.