Posted inNews

CSOP launches HKD money market ETF

Targeting institutional, high net worth and corporate investors, CSOP Asset Management has listed the Hong Kong Dollar Money Market ETF on the Hong Kong bourse.
Coins of Hong Kong. Flowers of bauhinia blakeana also known as Hong Kong orchid depicted in the Hong Kong dollar coins.

The money market fund primarily invests in Hong Kong dollar-denominated short-term deposits. It is benchmarked to the three-month Hibor, the city’s interbank interest rate.

The model investment portfolio as of end of June includes assets with varied maturity from less than one week to more than three months.

The fund aims to maintain maturity in short-term securities to ensure liquidity, according to Fred Zhang, CSOP’s senior portfolio manager.

Bank deposit is better?

The expected annualised return for the fund is 1.5% over a three-year period, calculated after the management fee of 0.3% has been deducted.

The fund’s forecasted return, however, is less than the interest on a bank time deposit in Hong Kong. Opening a new account at Standard Chartered, for example, and putting capital in a twelve-month time deposit (minimum HK$100,000), pays 2%.

Zhang expects the fund’s return will increase in the second half as the Hibor rises, driven by globally rising interest rates. He also pointed out that a bank time deposit or other cash equivalent is illiquid for a set period, but the fund aims to be liquid.

The minimum investment threshold is set at HK$1m ($127,395) for a 1000-share lot. The fund has gathered HK$935.1m in assets since its launch, according to the firm.

Melody He, head of sales and product strategy, believes the product is suitable for investors with low risk appetite because of the cash-equivalent nature of the underlying nature. She said only some rare incidents would introduce serious risk for this product, such as Hong Kong’s banking system facing systematic risk or material changes in the peg between Hong Kong dollar and the US greenback.

Hong Kong MMF

The product is the first money market ETF listed on the Hong Kong exchange. However, there are a total of 51 money market mutual funds registered with the local regulator and as a group, they seem to have trouble gathering assets.

The funds altogether have assets of merely $22.4bn. The total expense ratios range from 0.11% to 1.64%, according to FE.

Funds investing in HK dollar assets returned 0.19% on average in cumulative terms over the past three years. The AUM of 15 products totalled $3.5bn, FE data shows.

China has a money market-dominated fund industry that has grown due to flexible individual fund subscription amounts and accessible online platforms. The aggregate assets of money market funds in China totalled RMB7.3trn ($1.1trn) across 348 products at the end of March.

CSOP’s He said it is unfair to compare the products available in Hong Kong and China because “the mainland already has a well-built ecosystem for money market funds”.

She expects more discussion with the local exchange on lowering the expense ratio, which may bring down the minimum investment threshold.

The firm is considering rolling out money market funds investing in US dollar or renminbi-denominated assets in the future.

Part of Mark Allen.