Mirae joins thematic ETF trend in Hong Kong

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Assets of three other China-focused thematic ETFs have already passed the break-even mark.

Mirae Asset Global Investments has launched two themed China-focused ETFs in Hong Kong, according to filings from the local bourse.

The Horizons China Biotech ETF and the China Cloud Computing ETF were listed today.

They are the Korea-based firm’s first thematic ETFs in Hong Kong, according to data from Hong Kong Exchange. In total, the firm manages 11 ETFs in the SAR, which include five leveraged and inverse products.

The China Biotech ETF’s underlying benchmark is the Solactive China Biotech Index, according to exchange filings. The index includes around 20 of the largest biotech and pharmaceutical-related companies that are listed in China, Hong Kong and in the US, according to the index factsheet.

The Cloud Computing ETF’s underlying benchmark is the Solactive China Cloud Computing Index, which also includes around 20 of the largest cloud-computing companies that are listed offshore and onshore. These companies may be in the internet retail, internet software, information technology, and data processing services sectors, according to the index factsheet.

Mirae believes that both the biotech and cloud computing sectors in China provide attractive long-term investment opportunities, according to a statement from the firm.

For example, the compounded annual growth rate of healthcare capex in China was 132% between 2013-2017, the firm said. In addition, the number of biotechnology patents in China has also surpassed the US, growing to around 6000 in 2016 and now make up 27% of the global total.

On the cloud computing front, although the sector is still nascent in China, the firm expects it to grow significantly on the back of supportive government policies that subsidise and promote the adoption of cloud computing.

“Previously the domain of venture capital and private equity investors, the launch of the two ETFs marks the opening of the biotech and cloud computing sectors to the wider investor community, allowing them to share in the enormous potential of these two industries,” JH Rhee, the firm’s CEO in Hong Kong, said in the statement.

China themes growing

Asset managers are starting to offer more specialised passive products to investors, providing alternatives to the glut of China equity index ETFs.

Industry players have often said that Hong Kong’s ETF market lacked diversity, especially in the Greater China equity space. Out of the 110 listed ETFs in the territory, nearly half of them are focused on the Hong Kong and China equity markets.

This has led to the delisting of a number of ETFs, which often failed to attract sufficient assets. Since 2017, at least 35 ETF products have been delisted – a majority of which were focused on the China equity market and follow broad indices that have similar constituents.

Some ETF providers have begun to launch more specialised products, including factor or thematic funds. In the China equity category, there are now at least seven China-focused thematic or factor ETFs, according to data from the Hong Kong Exchange.

Three of them, which were launched before 2018, have already exceeded the $25m (HK$195m) AUM mark that often represents a break-even point for ETFs.

Specialised China-focused ETFs

Fund

Launch date

Assets (HK$ m)

ICBC CSOP S&P New China Sectors

December 2016

928.3

Premia CSI Caixin China Bedrock Economy ETF

November 2017

562.5

Premia CSI Caixin China New Economy ETF

November 2017

563.2

Samsung CSI China Dragon Internet ETF

June 2018

98.93

W.I.S.E-Nasdaq Overseas China New Econ Co Top 50 Idx Tracker

September 2018

15.92

Ping An MSCI China Multi Factor ETF

November 2018

34

Ping An MSCI China Quality

November 2018

29.6

Source: HKEX

But it is still too early to see whether Mirae’s new products will also gain traction, especially since they focus on sub-sectors of an industry rather than invest in a broader theme.

Private banks, such as UOB Private Banking and DBS Private Bank, have reservations about investing in sub-sectors and prefer products that have broader themes.

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