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Rayliant aims smart-beta products at Asia

Rayliant Global Advisors plans to launch smart-beta products in Asia after a Hong Kong acquisition completes, chairman and CEO Jason Hsu said.

Rayliant is in the process of acquiring a small-scale local asset management firm in Hong Kong, he told FSA.

He would not disclose the name of the firm but said the reason for the purchase is to gain research and investment resources that will expand his firm’s capabilities into active fund managment.

After the acquisition completes, the firm intends to launch mutual funds for sale in Greater China. Currently, the firm licenses indices to asset managers in China.

“In the region, over 95% of trading is retail trading,” Hsu said. “They are speculating and they made a lot of behaviorial mistakes, which gives more disciplined active managers an edge over the long-term to create alpha in this market,” he explained.

Smart beta plan

Hsu also plans to develop a “core smart-beta with alpha satellite strategy” aimed at institutional investors who seek A-share exposure.

Globally there are more than 800 smart-beta ETFs with combined assets of $415bn, but only 100 products totaling $3.2bn are listed in Asia-Pacific, according to consultant ETFGI.

Only 19 smart beta ETFs are listed in Hong Kong, with combined assets of about $200m.

Smart beta products will take a while to catch on in Asia, he added, as the wealth management industry in the region is still focusing more on actively-managed funds rather than index funds.

“Smart-beta products need to find a way to be commercially interesting for wealth management platforms to include them in the client portfolio.”

He noted the trend of investors in the US and Europe to shift from a large-scale broker-dealer platform to independent financial advisors, is “a critical industry revolution that made ETFs and index funds popular with advisors”.

One catalyst for ETF interest would be when the MSCI eventually includes A-shares into its emerging market indices. Yesterday, MSCI rejected the inclusion for the third time.

Building indices

The firm is partially owned by US-based Research Affiliates (which was co-founded by Hsu).

Hsu said RA has partnered with firms such as FTSE, Pimco, State Street and Blackrock to provide smart-beta portfolios through index licensing and investment sub-advisory in the US and Europe (the RAFI fundamental index products).

Rayliant has also worked with index provider CSI and launched six indices under the RAFI brand.

One is a mainland index called The CSI RAFI 300 Index, which has the top 300 A-shares. According to Hsu’s data, it recorded a three-year annualised return of 12.75% compared to the 6.77% returned by the CSI 300 Index.

In Hong Kong, products include Ping An of China CSI RAFI HK50 ETF and Ping An of China CSI RAFI A-Share 50 ETF.

Rayliant now manages $4bn of assets using its strategies, Hsu said, adding that the firm has attracted institutional money from pension funds in Greater China.

Part of the Mark Allen Group.