Premia Partners next week expects to list in Hong Kong two physical ETFs, the MSCI Vietnam ETF and the US Treasury Floating Rate ETF.
Timing may not be the best. Although the Hang Seng is up 12% year-to-date, the ongoing trade dispute and the massive protests against the SAR government are widely expected to depress the market further this year.
In addition, ETFs have been delisted in Hong Kong for failure to gather satisfactory assets, though the majority were China A-share focused.
David Lai, partner and co-chief investment officer, told FSA that he’s nonetheless confident because the products are differentiated.
He said the themes were developed based on conversations with existing clients. The firm launched the Emerging Asean Titans ETF last year, but it only has 5% exposure to Vietnam and Lai said clients were asking for a pure-play Vietnam product.
Additionally, the ETFs address opposite ends of the risk spectrum.
“Investors are given a choice, depending on their risk appetite,” Lai said. “The Vietnam ETF is the higher risk — frontier market and equity exposure. The US Treasury ETF is the other side — a safe, low risk product.
“These are not short-term themed products, we see long-term growth potential.
“With the trade war it’s actually good timing now. Part of the reason for client interest is the shift in the supply chain from China to Vietnam. It began years ago, but it’s happening faster.
“There’s also the consumption story, with a rising middle class and the potential for Vietnam to upgrade from frontier market to emerging market in the next few years.”
According to Lai, the US Treasury ETF is the only passive product of its kind available in Asia.
“It’s low duration US Treasury notes, floating rate, with zero credit risk. Investors in Asia would normally go to the US market for this exposure, but then they would be subject to US withholding tax.”
Total expense ratio for the Vietnam ETF is 0.75% and for the US Treasury product, 0.15%. Lai believes the ETFs will appeal to both institutional and retail investors.
Premia Partners was founded in 2017. Of the four partners, Rebecca Chua and Alexsey Mironenko were previously at Blackrock, Lai was at China AMC and Laura Lui led the quant team at ICBC Credit Suisse, a joint venture firm.
The firm has four funds listed in Hong Kong. The initial focus has been on smart beta and Asia, but the broader mandate is on differentiated passive products. AUM is $250m, according to the firm.