David Lai, Premia Partners
Premia Partners, whose partners include two ex-Blackrock executives, is relatively new to Hong Kong’s ETF market. The firm debuted in October last year with the launch of two China-focused smart beta ETFs. So far, the two products have gathered $118.5m in assets collectively, according to data from the Hong Kong Exchange.
The two new smart beta ETFs will be Hong Kong-domiciled and are expected to list on the Hong Kong bourse early next month.
The thematic ETFs will be the first of their kind in Hong Kong’s ETF market, according to HKEX data. Products that invest in the Asean markets are mostly single-country ETFs, while there are no technology-focused ETFs.
The SAR’s ETF industry already provides exposure to a variety of markets globally, but assets are concentrated in only a few products. Around 75% of total ETF assets are in Hong Kong- and China-focused ETFs.
Rebecca Chua, managing partner of Premia Partners, believes Hong Kong-listed ETFs are not developed based on client demand and they tend to follow the same indices. She said more product diversity is needed.
“We have a short list of strategies that we believe would be good products given the market landscape and current gaps in terms of client-needs,” Chua told FSA.
“What we do is ask our clients to check whether these are something that they want, and these two products come very high up in our more recent conversations with them,” Chua said. The firm’s clients are mainly institutional investors and wealth managers, she added.
Smart beta vs active
Although there are no ETFs that invest in the Asean markets as a whole, there are active mutual funds that invest in the region.
There are six SFC-authorised Asean funds in Hong Kong and 15 MAS-authorised Asean funds available for retail and accredited investors in Singapore, according to data from FE Analytics.
Similarly, both markets also offer a variety of technology-focused mutual funds to investors (22 SFC-authorised and 41 MAS-authorised).
Chua believes the lower fees of her firm’s two smart beta products (a TER of 50 basis points each) will prove to be an advantage in gathering assets. “Most of the mutual funds are charging much higher fees,” she said.
The average TER of Asean funds is 1.69% and for IT-focused funds, 1.94%, FE data shows.
Defining the themes
Data from FE Analytics show that out of the 15 Asean funds in Singapore, 11 of them follow MSCI AC Asean Index as their benchmark. Singapore has the largest weighting (32%) in the index, according to data from MSCI.
The other funds that follow different indices, such as the Dow Jones Islamic Market Asean and the FTSE Asean 40 indices, also include Singapore in their breakdown.
However, Premia’s Asean ETF, which follows the Premia Dow Jones Emerging Asean Titans 100 Index, excludes Singapore in its investment universe, according to David Lai, the firm’s chief investment officer.
“A lot of the other funds focus on Singapore, but we think that it is a developed market and we try to focus on the emerging and frontier markets,” Lai said. In terms of country exposure, the product only includes Thailand, Indonesia, Malaysia, Philippines and Vietnam.
The firm’s technology-focused ETF will invest mainly in China, Japan, Korea and Taiwan, guided by three themes: Digital transformation, health/life science innovation and robotics/automation, according to Lai. The product only includes companies that have at least 20% of their revenues that fall under one of these themes.
The firm worked with Factset to come up with its benchmark, the Premia Factset Asia Innovative Technology Index.
Unlike most technology mutual funds that focus on companies that fall under “information technology” within the traditional GICS classification, the smart beta ETF will make use of Factset’s “revere business and industry classification system” (RBICS), which has a more granular industry classification.
The RBICS enables Premia Partners to identify how much a company’s revenue contributes to a particular sub-segment. For example, a company classified as “industrials” under the GICS system may actually be identified as a robotics company under the RBICS if a portion of its revenues falls under the sub-segment, Lai explained.