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Cost pressures force ETF providers to delist products

Enhanced Investment Products has quietly closed seven of its nine Hong Kong-listed ETFs as it prepares for the official launch of its new XIE Shares FTSE Gold Miners ETF in Hong Kong on November 18.
Fund Selector Asia

According to filings with the Stock Exchange of Hong Kong, the Hong Kong-based boutique provider of XIE Shares ETFs filed to delist seven synthetic products tracking broad equity indices of India, Indonesia, Korea, Malaysia, Philippines, Taiwan and Thailand on September 29. Their last trading day was October 31.

In fact, HKEX filings show that altogether 19 ETFs from several firms were delisted in 2016. Only three met this fate in 2015 and six in 2014.

Jacky Choi, ETF strategist at Morningstar in Hong Kong, doesn’t think this is a bad sign for the territory’s ETF market.  “Closing some ETFs which are less liquid or small in size is very common,” he said.

It may mean, however, that ETF providers are facing pressure to cut costs and lower their management fees, which force them to optimise their product portfolios.

ETF providers globally have been under pressure to lower management fees. While the pressure is higher in Europe and US, Vanguard and iShares reduced some fees on Hong Kong-based ETFs earlier this year.

Other providers are likely to reassess their product portfolios and close unprofitable funds. “The bigger ETFs can allow themselves to cut fees,” said Choi. “For less liquid, smaller ETFs, it doesn’t make sense for the provider to keep them.”

The annual management fees EIP charged in the seven closed funds ranged from 0.75%-1.29%, making them expensive compared to their equivalents still on the market. The funds were launched in February 2012.  In September 2016, each had assets between HK$9m-HK$67m, according to HKEX filings.

Their closure reportedly stems from lack of demand and from EIP’s desire to focus on its more successful products: XIE Shares CLSA GARY ETF (a smart-beta fund), FTSE Chimerica and the new FTSE Gold Miners ETF, which is scheduled to start trading on November 18.

The firm is also planning to launch leverage and inverse ETFs, following Samsung Asset Management, China AMC, and CSOP.

China-focused products

Another reason for de-listings could be difficulties in gathering assets in Hong Kong’s ETF market, notorious for its concentration on a few, mostly China-access products.

In October, Ping An, a Chinese ETF provider, filed a notice to delist two of its three products trading in the territory. Earlier in the year Horizons, a subsidiary of Korea’s Mirae Asset, closed five of its 12 ETFs, UK-based ETF Securities delisted its three precious metal ETFs, thus exiting the Hong Kong market, and Taiwan’s Yuanta pulled the only product it had listed here.

Deutsche Asset Management, a regional ETF powerhouse, also delisted its US Dollar Cash UCITS ETF in October, reportedly since no local investors were invested in it. The troubled German bank is also rumoured to be trimming its product portfolio further.

Part of the Mark Allen Group.