Hong Kong-headquartered Premia Partners has received approval from the Securities and Futures Commission (SFC) last week to list two fixed income ETFs in the SAR, according to the regulator’s records.
The Premia China Treasury and Policy Bank Bond Long Duration ETF and the Premia China USD Property Bond ETF are expected to be listed on the Hong Kong Exchanges and Clearing (HKEX) this Wednesday, according to Rebecca Chua, managing partner at Premia Partners.
Chua claimed that the Long Duration ETF, which tracks the ICE 10+ Year China Government & Policy Bank Index, is the first ETF globally that provides access to the long duration China treasury and policy bank bonds. Existing China treasury/policy bond ETFs focus more on the short duration segments, she said.
“It would be a useful tool for allocators with long duration liability matching (ALM) needs, such as insurance companies and pension funds that have long-term liabilities, which are always trying to find enough long-term assets to match,” Chua told FSA.
“This product is also for tactical asset allocation vis a vis other long duration developed market government bonds. 30-year China government bonds historically have around 100-200 basis points (bps) yield spread with 30-year US treasury (3.7% versus 2.3% at the moment), so the yield pick up is quite attractive,” she added.
Premia Partners has appointed BOCHK Asset Management as the ETF’s investment advisor and will provide research support, Chua noted.
Meanwhile, the China USD Property Bond ETF tracks the ICE 1-5 Year USD China Senior Real Estate Corporate Index, and will be the first Hong Kong-listed high yield bond ETF in the SAR, according to SFC records.
“With around 7% yield, China’s property bond market provides much more attractive risk-adjusted returns compared to other US dollar high yield instruments, and would be a useful tool for US dollar investors looking for higher-yielding options,” Chua said.
DIVERSIFYING HONG KONG’s ETF MARKET
The launch of the new funds diversifies Hong Kong’s ETF market, as it continues to be dominated by equity products.
Out of the 119 ETFs listed on the local bourse, only eight of them are fixed income ETFs, HKEX data shows.
Fixed income ETFs listed in Hong Kong
|ABF Hong Kong Bond Index Fund|
|ABF Pan Asia Bond Index Fund|
|BMO Asia USD Investment Grade Bond ETF|
|ChinaAMC Bloomberg Barclays Chinatreaury + Policy BK B IDX ETF|
|CICC Bloomberg Barclays China Treasury 1-10 Years ETF|
|CSOP Bloomberg Barclays CH Treasury + Policy BK Bond IDX ETF|
|Ping An of China CSI 5-10Y CGB ETF|
|Premia US Treasury Floating Rate ETF|
“Fixed income ETFs are less straightforward to manage than equity ETFs as the underlying equities are already listed, and the entire operational model with fixed income is more complicated, so the fee may not necessarily be able to commensurate the efforts compared to equity ETFs,” Chua explained.
“Fixed income ETFs have taken some time to develop in more matured ETF markets, but once investors are more acclimated to using ETFs for fixed income asset allocation, they can grow very fast.”
Premia Partners manages six ETFs in Hong Kong, which includes one fixed income ETF – the Premia US Treasury Floating Rate ETF.
Besides the two fixed income ETFs that will be launched, the firm is planning to roll out two-three more equity ETFs this year, according to Chua, but did not elaborate.