Passive money market funds in the form of ETFs have had a 130% increase in assets over 12 months to end-June 2019, compared with a lower but still healthy 12% growth for the overall money market fund segment in Hong Kong, according to the Fitch report.
Hong Kong has only four SFC-authorised money market ETFs out of a total of 54 money market funds, according to FE data.
Three MM ETFs are from CSOP. The largest is the firm’s Hong Kong dollar product, with $353m AUM.
All four MM ETFs collectively have around $515m in AUM, according to FE. In the broader universe of all SFC-registered money market funds, total AUM is around $24bn.
By comparison, China’s MM ETFs are much larger than Hong Kong’s — RMB 641bn ($93bn) as of end-July 2019, across 23 providers.
Money market funds tend to provide a higher yield than bank deposits and are a relatively safe place to park capital when market direction is unusually uncertain.
However, there are risks involved, particularly with passive instruments. “Hong Kong MM ETFs do not disclose the names of all entities in their portfolios. This lack of transparency means MM ETFs may assume significantly different levels of credit risk, challenging investors’ ability to determine accurate risk-return profiles,” the Fitch report said.
ETF diversity
The rapid AUM growth of Hong Kong MM ETFs may spur new entrants, thus raising competition and prompting managers to differentiate themselves from peers, the report noted.
From a broader picture, assets in Hong Kong’s ETF industry have grown threefold in the last 10 years, but the market remains small and lacks product diversification, according to Mohamed M’Rabti, Brussels-based head of ETFs at settlement firm Euroclear.
“Diversity is really lacking in the Hong Kong ETF space,” he told FSA last year, adding that assets are overly concentrated in just a few products.
In total, there are 109 ETFs, excluding leveraged and inverse products, listed in Hong Kong with assets of around $295bn, according to data from the Hong Kong Stock Exchange.
