How SSGA’s ETFs and Zeal’s hedge funds stood tall

Best ETF Manager
State Street Global Advisors

One of the big three index investment managers, and indeed the inventor of the exchange-traded fund (ETF) concept, State Street Global Advisors continued to benefit from the shift of assets from active and into passively managed funds during 2016.

Unlike many ETF providers, SSGA does not roll out lots of new products each year, hoping that a few will catch on while quietly de-listing others. Instead it manages 29 ETFs through its SPDR brand in Australia, Hong Kong, Singapore and Japan, and ensures they remain popular and liquid. They were worth a combined $19.46 billion at the end of last year.

The fund manager already boasts two of the largest ETFs in Hong Kong, and its benchmark Tracker Fund enjoyed eye-popping inflows last year, taking in $963.78 million. Its Pan Asia Bond Index Fund ETF did even better, registering $1 billion in additional demand to reach $3.7 billion. Other products also registered strong growth. Its internationally listed SPDR Gold Shares cross-listed ETF swelled a huge 40% to $30.6 billion.

SSGA works with institutional investors in the region to help them meet their passive investing needs too. The company pointed to several institutional mandates in Japan last year as evidence of this success. Moreover, a partnership with Seoul-based Korea Investment Management led to two fund launches.

Other notable milestones during 2016 reflected the innovative side of the business.

They included the launch of the SPDR SSGA Gender Diversity Index ETF (SHE) in March 2016. This US-based benchmark tracks the companies that boast a higher representation of women on their boards as an indication of more inclusive mindsets. It is likely to spawn sub-indexes across the world, as ESG matters continue to gain traction.

Additionally, SSGA launched two ESG-friendly US-listed ETFs that eschew fossil fuels. And in a sign of the seriousness with which it considers this sector, it transferred an ESG strategist to Asia last year, in addition to a gold specialist.

Best Alternatives/Hedged Strategy
Zeal Asset Management

Hedge funds in general haven’t had a happy few years, and those in China have particularly struggled amid a prolonged period of difficulty, following the stock market collapse from mid-2015 onwards. Zeal was a rare exception.

The firm’s AUM soared more than 50% during 2016 to reach $772 million as of December last year. It did so on the back of some impressive returns; the Zeal China Fund returned 8.5% in 2016, versus a median reurn of -2.1% for the sector, according to Morgan Stanley.

Zeal isn’t standing still either. It was the first Hong Kong unit trust manager to sell to mainland retail investors via the Hong Kong-China mutual recognition of funds (MRF) scheme last year. It was able to do so because founder Franco Ngan had set up the Zeal Voyage China Fund in 2010 as an SFC-authorised, Hong Kong domiciled unit trust back in 2010.

This offered it a unique advantage when MRF was announced. Typically funds need to be domiciled in Hong Kong for at least a year to be eligible for inclusion in the scheme, but most rival funds are Cayman Islands-domiciled. Hence Zeal had the market largely to itself as it benefited from positive mainland news coverage.

Another advantage Zeal has taken advantage of is to partner with Tianhong Asset Management as its mainland master agent. Alibaba-owned Tianhong is China’s largest asset manager due to its Yue’Bao money markets fund. Its sheer size offered Zeal a great platform from which to engage with many clients via mobile apps and websites.

The Zeal Voyage fund stood at HK$1.9 billion ($244 million) at the end of last year and possessed the second-best Sharpe ratio of its peer products, according to Lipper. It did suffer a drop of 9.85% during January and February last year, but that compared to falls in the Hang Seng Index and Hang Seng China Enterprises Index of 16.79% and 22.68%, respectively. In other words the hedge fund did its job in minimising losses.

Zeal’s track record has helped it gain major new clients, including a European sovereign wealth fund. After conducting nine months of due diligence, it gave Zeal a sizeable capital injection last year.