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Samsung AM shifts to smart beta

The Korean asset manager, which delisted six ETFs in Hong Kong last year, now plans a move into thematic and smart beta products for the Hong Kong market.

After delisting six ETFs in Hong Kong in 2017  — mostly esoteric leveraged and inverse ETFs — Samsung Asset Management has re-thought its product strategy.

According to Peter Lee, Seoul-based head of global strategy of ETF and index investments, the firm now plans to develop thematic and smart beta strategies for Hong Kong investors.

Smart beta is essentially factor investing. The product aims to provide outperformance by focusing on specific factors using models and algorithms.

The move will put Samsung into head-on competition with Premia Partners, which is focused squarely on smart beta in Asia and has a partnership with US-based Wisdom Tree. This month, the firm launched two smart beta products in Hong Kong, FSA reported earlier.

Simplifying the message

Smart-beta products are relatively new in Hong Kong and introducing them to local investors will require market education.

“Bringing something innovative is not always easy when it comes to building the ecosystem and educating investors about the new types of products,” Lee told FSA on a recent trip to Hong Kong.

Carmen Cheung, head of ETFs at the firm, added: “Smart beta is generally for savvy and sophisticated investors. But we are attempting to design a product that can be easily understood.”

The firm is evaluating an income theme. Cheung believes Hong Kong investors can easily understand a smart beta product if the main factor is generating income.

Another smart beta theme under consideration is low volatility, which could play a role in downside protection of a portfolio.

“Investors may also want to lower volatility in their portfolios and hedge risks, especially during the ongoing trade negotiations between US and China.”

ETF Connect

Samsung AM is also looking at selling into China’s domestic market through the expected ETF Connect programme, a cross-border trading scheme for ETFs.

The ETF Connect was initially scheduled to be operational by the end of 2017, but the launch has been delayed and is now expected to take place in early 2019, according to industry insiders.

Building a product platform to prepare for southbound investors is part of the plan because it is expected there will be a large amount of capital flowing from the mainland into Hong Kong when the scheme launches, Lee said.

“In Hong Kong, the assets invested in ETFs have gradually been expanding the last few years. But we look more at the growth potential and believe Hong Kong is the gateway to China,” he said.

The firm said it is growing the team in Hong Kong, which it plans to turn into a regional hub to manufacture and distribute products to other regional markets including South Korea, where the firm is headquartered.

In June, Samsung AM launched its first thematic product, the CSI China Dragon Internet ETF in Hong Kong.

Part of Mark Allen.