Industry Updates

Hong Kong's biggest ETF just hit US$13bn

Felix Xu

a city skyline at night

State Street-managed TraHK hits HK$100 billion (US$13 billion) in assets making it the biggest ETF in Asia.

The Tracker Fund of Hong Kong (TraHK) was created by the Hong Kong government to manage public retirement money. Now, it's the largest equity ETF on the island, hitting HK$100bn (US$13bn) thanks to increasing uptake from Hong Kong's mandatory pension fund (MPF) and a bull run on global stock markets.

TraHK was founded from the stock disposal programme initiated by the Hong Kong Government in late 1990s.

The Hong Kong Government sold the portfolio of Hong Kong equities it acquired for stabilising the market during the Asian financial crisis by wrapping the equities in the form of the tracker fund, and listing it on the Hong Kong Stock Exchange (HKEX) in 1999.

The TraHK has been growing significantly since then, tripling its AUM from its initial size of HK$33 billion.

It has become the first and only ETF in Hong Kong to have reached this size, and is the largest equity ETF in the entire Asia ex Japan region.

State Street Global Advisors (SSGA), the manager of TraHK, says TraHK has become a preferred vehicle for global and local investors seeking strategic and tactical exposure to Hong Kong equities.

The TraHK is designed to track the performance of the benchmark Hong Kong Hang Seng Index. The fund is one of the mostly actively traded ETFs in Hong Kong due to its broadly represented underlying structure.

According to Ray Chan, vice president and head of ETF business development, Asia ex-Japan at SSGA, the Hang Seng Index was up by more than 30% last year.

An increasing number of institutional and retail investors wagered on the TraHK to capture the market trajectory, resulted in an AUM growth of 22% for the fund last year, he says.

The fund's 3-year and 5-year AUM growth is 59% and 75%, respectively.

"The TraHK offers investors a relatively easy and cost efficient way to invest in a diversified portfolio of Hong Kong's largest, most established companies and benefited from their capital appreciation and dividend income potential," says June Wong, senior managing director and head of Asia ex-Japan for SSGA.

According to Mr. Chan, MPF shares of the fund's total AUM has been increasing over the past few years.

"MPF contribution accounted for about 11% of the fund's total AUM as of September 30, 2017, against about 2% as of 2012," Mr. Chan notes.

In addition, the number of MPF providers with the offering of TraHK based constituent funds was up from four in 2011 to the current eight including Bank of East Asia (Trustees), BCT Financial, BOCI-Prudential Trustee, and FIL Investment Management (Hong Kong).

"We've seen the TraHK increasingly being used by Hong Kong employees in their MPF investments. We believe that the ease of use, diversification and low-cost nature of the fund, as well as its long-term performance, will underpin its popularity," Ms. Wong says.

Although there have been more index fund and smart beta products available in the MPF platform such as Franklin Templeton Investments' MPF smart beta equity strategy, Mr. Chan plays down the impact of market competition, noting that passive products can provide a cost effective and high transparent retirement solution to MPF members.

According to the Mandatory Provide Fund Scheme Authority, 143 out of the 485 MPF constituent funds were approved index tracking collective investment schemes as of March 31, 2017.

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