“The decision to offer the funds to Hong Kong retail investors is part of a major strategic plan that will eventually see applications for further products to be authorised for sale in the territory,”June Wong, senior managing director and head of Asia ex-Japan at State Street Global Advisors (SSGA) told FSA.
“We have identified a trend of money moving away from institutional managers to individuals as baby-boomers reach retirement,” she said.
“[Moreover], the sheer volume of wealth created in Asia also provides a tremendous growth opportunity, so we are keen to build out our wealth management franchise in the region.”
Yet, the fund sales will be taking place against a difficult economic environment, with investor confidence dented by five months of protests and the protracted Sino-US trade conflict.
Earlier this week, Hong Kong’s beleaguered chief executive Carrie Lam warned that the territory may enter a “technical recession” and should expect negative economic growth this year.
However, Wong insisted that it is not a tactical misstep to launch the funds now, because SSGA is tapping into a decades-long trend of growing demand.
Range of products
The first batch of ten funds that have been authorised by Hong Kong’s Securities and Futures Commission include three active products that invest in European value equities, global defensive equities and global value equities. The seven passive, index tracking products cover European equities, emerging market equities, global bonds, Japanese equities, Pacific ex-Japan equities, US equities and global equities (see table below).
Wong said that the funds, which are well-established in Europe and range between $101m and $4.7bn in size, were selected in response to guidance from SSGA’s distribution partners.
“We have been working closely with one leading bank in particular and it indicated which types of product are likely to elicit the strongest demand,” she said.
Although seven of the products are index-tracking, they are not exchange traded funds (ETFs), which have had a mixed response from Hong Kong investors.
Industry players have complained that Hong Kong’s ETF market lacks diversity, especially in the Greater China equity space. However, asset managers have started to offer more specialised passive products to investors, providing alternatives to the glut of China equity index ETFs.
Wong said that SSGA — which competes with Blackrock and Vanguard in the passive fund market — needs to explain better the costs and transparency advantages of index-trackers to the general public.
“The funds also could be treated as ‘building blocks’ for future offerings with our [distribution partners], rather than standalone products,” she added.
But, notable omissions from the list include funds dedicated to China A-shares, which have generated strong returns this year on the back of index inclusion, mandates with a growth tilt, thematic and ESG funds which have gained traction this year, and perhaps most surprisingly, income products, such as high yield bond funds focused on Asia or emerging markets.
Retirees typically require regular income rather than capital appreciation at their stage in the investment life-cycle, but Wong explained that “lots of Asian investors tend to have large interest-earning cash deposits, so although they like the concept of income generation, they rarely need it”.
Besides, three out of the four SSGA funds already sold in Hong Kong fill some of the gaps. These include the ABF Pan Asia Bond Index Fund, the SPDR FTSE Greater China Fund, the SPDR Gold Shares Fund and the $10.29bn Tracker Fund of Hong Kong
“We’re also looking to the future and are eager to attract investors from the younger population. In fact, as part of that focus, we might eventually look to partner up with firms which specialise in more modern, digital types of distribution,” said Wong.
She would not disclose the names of the distributors of the ten Sicav sub-funds in Hong Kong or when precisely they will begin marketing the products — except that it is likely to happen before the end of this year.
Wong said that an application to sell the funds in Singapore “could not be ruled out in the future”, but that the primary focus was to develop the franchise in Hong Kong.
SFC-authorised sub-funds of State Street Global Advisors Luxembourg Sicav
| Sub-fund |
Size ($) |
3-year cumulative return % | 3-year annualised volatility % | Sharpe ratio |
OCF % (retail share class) |
| State Street Europe Index Equity* |
969m |
29.19 | 12.53 | 0.41 |
0.26 |
| State Street Europe Value Spotlight** |
339m |
7.32 | 16.13 | 0.00 |
1.60 |
| State Street Global Aggregate Bond Index* |
3.16bn |
7.22 | 4.47 | 0.00 |
0.21 |
| State Street Global Defensive Equity** |
1.01bn |
30.97 | 9.45 | 0.63 |
0.85 |
| State Street Global Emerging Markets Index Equity* |
245m |
22.79 | 14.56 | 0.23 |
0.55 |
| State Street Global Value Spotlight** |
151m |
24.46 | 13.71 | 0.30 |
1.60 |
| State Street Japan Index Equity* |
428m |
21.34 | 11.32 | 0.29 |
0.30 |
| State Street Pacific Ex-Japan Index Equity* |
101m |
28.95 | 11.79 | 0.44 |
0.30 |
| State Street US Index Equity* |
1.59bn |
48.07 | 13.07 | 0.79 |
0.25 |
| State Street World Index Equity* |
4.70bn |
39.32 | 11.59 | 0.70 |
0.25 |
