After King Au took over as CEO last December, the firm reviewed its corporate strategy, including the ETF business.
“Although the smart beta and low-fee products have not grown AUM as fast as we expected, we are still committed. But now we hope to reposition our smart beta ETFs to target more institutional clients,” Mak told FSA.
“To achieve that, we cut fees to meet their needs.” Mak is on Value Partners’ eight-person quantitative investment team that looks after all the quantitative funds and ETFs.
Starting May 1, the Hong Kong-listed Value China ETF and Value China A-shares ETF will have management fees slashed to 0.1% from 0.7%, according to filings (1,2) to the local bourse.
Value Partners has six ETFs listed in the SAR, including five smart beta product tracking regional single market indices, and one that mimics the performance of the London Gold Fixing Price.
The firm’s gold ETF has also scrapped the 15-basis-point management fee temporarily until June this year, as reported earlier. Mak said the firm may lower the management fee after the promotional period.
“We now treat ETFs as part of the firm’s whole product suite, rather than a standalone business. We hope to meet the demand from different investors: some might prefer high alpha with high risks, some are benchmark agnostic, and some prefer low fees,” he noted.
Value Partners’ had total AUM of $14.5bn as of March. Quantitative funds and ETFs only account for about 1% of the total assets as of end of last year, according to the firm’s annual report.
ETF market education
There’s still a lack of understanding of ETFs, let alone smart beta, among retail investors in Asia, noted Gary Yuen, manager of the intermediary business.
“We have done about 50 seminars on ETFs last year and we found that it is quite hard for retail investors to understand smart beta. Smart beta is the next step for them before getting familiar with [plain vanilla] products,” Yuen explained.
Institutional investors, on the other hand, are more familiar with smart beta and do not have to worry about secondary market liquidity, he continued.
For high net worth investors, although private banks will usually trade in the secondary market, the firm can also offer primary market subscription or redemption through the participating dealers, he added.
L&I launch
Value Partners also expects to launch Singapore’s first leveraged and inverse (L&I) ETFs in the second half, Mak said. The firm has the advantage of a local office with necessary licenses to list ETFs in the market, which other ETF issuers might not have, Mak noted.
Singapore has one inverse ETF, which listed in 2009: The db x-trackers S&P 500 Inverse Daily UCITS ETF.
“One of the biggest regulatory difference between Singapore and Hong Kong is that Singapore allows the leveraged ETFs tracking A-shares,” Mak said.
Hong Kong’s Securities and Futures Commission earlier said it has “has no plan to accept applications for L&I products tracking mainland indices”. Still, since the launch of 17 such products tracking Hong Kong-listed stocks just a month ago, four of them made it to the ten most actively traded ETFs in March, according to the Hong Kong Stock Exchange.
“Both Hong Kong and Singapore markets are important financial hubs in Asia, and we hope the ETFs can attract not only domestic investors, but regionally from institutional clients, hedge funds, high frequency traders and others,” Mak said.
While Hong Kong has the advantage of the “China element”, Singapore can attract investors from ASEAN, he added. “We see a chance to develop the two markets in parallel at the same time.”
The firm’s other plans include L&I ETFs in Hong Kong, such as commodity-based ones, and other plain vanilla or smart beta ETFs in the two markets, Mak added. A smart beta ETF tracking ASEAN is one product idea.
The two-year performance of Value Partners’ two China-focused smart beta ETFs against various market indices, in US dollar terms, according to FE.
