ETF firms ready more products, mull strategies

Lippo Investments Management last week submitted its first exchange-traded fund for approval in Hong Kong, as other ETF providers prepare products*, with the focus likely to remain on simplicity and Asian underlyings.

The Lippo Select HK & Mainland Property ETF will presumably use as its underlying the index Lippo IM launched last month, which tracks Hong Kong and Chinese real estate stocks using a fundamental indexing methodology. The Hong Kong-based firm is also thought to be developing a fund-of-ETFs product for the territory’s Mandatory Provident Fund scheme.

Lippo IM declined to comment for regulatory reasons.

Meanwhile, Deutsche Bank’s db X-trackers unit plans to launch more ETFs in Hong Kong and Singapore this year.

“The [47-strong] product range is already quite complete in Singapore," says Marco Montanari, Asia head of db X-trackers. "We just need to fill a few gaps, but they need a bit more structuring work so may take a bit longer.”

The firm has a larger number of ETFs to add to its range in Hong Kong, where it has 30 listings, he adds.

Montanari expects more Hong Kong listings possibly late in the third quarter, while the Singapore products are more likely to come in the fourth quarter. The focus will be on products with local flavour, he notes, given that more than 90% of the assets managed by ETFs in the region have Asian underlyings. 

New Asia listings – in Hong Kong and Singapore at least – are likely to remain simple products for the time being, as providers agree that those markets are not yet ready for inverse or leveraged ETFs, and certainly not for actively managed ones. This is despite the fact that South Korean investors, for example, have quickly taken to inverse and leveraged ETFs.

It’s been an encouraging year for ETFs in the region, with Asia-Pacific ex-Japan ETF AUM having grown by 21.8% ($12 billion) in the year to July 31. Indeed, some $2 billion of net new assets poured into Asia ETFs in the past six weeks, with $525 million coming in the past week alone, the biggest weekly inflow in 2012, according to Citi. That compares to $1.5 billion of outflows from non-ETF Asia equity funds over the same six-week period.

It’s perhaps not surprising, then, that several providers are moving either to expand their existing ETF business in the region or start building one. They have three options: cross-listing existing products in Asia, developing new products here from scratch or marketing existing ETFs to institutional investors in the region.

One of UBS’s initiatives in Asia for the coming months will be to list or cross-list more exchange-traded funds, in Australia and in Asia proper, as reported last week by AsianInvestor. According to ETF Global Insight, UBS Global Asset Management has 82 ETFs listed in Europe, with total AUM of $11.4 billion, giving it a 4% market share there, as of the end of June.

US-based Invesco’s PowerShares ETF arm hired Christine Huang, formerly of Lyxor ETF, in Hong Kong in March. She is understood to be the firm’s first dedicated ETF salesperson in Asia. Huang declined to comment on Invesco’s plans as yet. 

Huang left her role as Hong Kong-based vice-president of sales and marketing for ETFs at Lyxor last year, shortly before the French firm delisted its entire 12-strong range of Hong Kong-listed ETFs.

Another US firm, Vanguard, established a Hong Kong presence early this year to add to its offices in Australia, Japan and Singapore. It is “exploring a range of opportunities” in the territory, says spokesman Robin Bowerman, who declined to discuss specific product plans.

*See the latest (September) issue of AsianInvestor for several features on the ETF industry in Asia.