SSgA focuses on Hong Kong and Singapore ETFs

Sammy Yip is the head of exchange-traded funds (ETFs) for Asia-Pacific at State Street Global Advisors (SSgA). He also acts as a technical advisor for SSgA sub-advised ETFs in China, Taiwan and Korea.

Prior to his current role, Yip was head of global structured products, Asia ex-Japan at SSgA Asia where he managed a team of portfolio managers in indexing and structured products strategies. He also managed the investment portfolios of SSgA's ETFs in Hong Kong and Singapore. Before joining State Street in 1999, he previously worked in Canada at Royal Bank of Canada Financial Group, where he started his career in the financial industry.

He spoke with AsianInvestor about SSgA's ETF business in the region and the prospects for growth of the industry.

Could you talk about your history in the ETF market in Asia and how your ETF business has evolved over the years?

Yip: The very first ETF we developed was the Tracker Fund of Hong Kong in November 1999. After that, we developed the first ETF in Singapore in April 2002 -- Street Straits Times Index ETF. And then we moved to Korea in September 2002, where we were also the first. But since SSGA does not have an investment license in Korea, we could not register our product with the regulator. Kosef 200 had as underlying asset the Kospi 200 index. How we did it was we partnered with a local fund manager and we played as a sub-advisor. Back then our partner was LG Asset Management, which changed its name a few times and is now known as Woori Credit Suisse Asset Management.

What were the challenges at that time?

The challenge to the regulators at that time was that ETFs were brand new to them. Although they have heard a lot about ETFs, they had no experience in terms of structuring an ETF, managing an ETF, setting up an ETF, the settlement on the exchange, and how to oversee the ETF. They had to rely on our international expertise. The Korean exchange wanted competition so they wanted to approve several products and we were involved in one of the first products approved.

Where did you go from Korea?

After Korea, we moved to Taiwan in June 2003 during Sars. We helped the local manager and the local regulator to develop the TTT ETF (Taiwan Top 50 Tracker Fund with Polaris). We helped the market build the first ETF in Taiwan.

And then we moved to China in February 2005, also to develop the first ETF. Our partner was China Asset Management. The name of the product is China 50 ETF, listed on the Shanghai Stock Exchange.

What is your business strategy now?

It's true that we are the pioneer of the ETF market in Asia. After all this pioneering work, we are back home focusing on the Hong Kong and Singapore market.

We developed the Pan Asian Index Fund in Hong Kong. We worked with the central banks and launched and managed the Pan Asian Index Fund. The one that we manage is the regional bond which invests in Asian government or quasi-government bonds. That one we launched in July 2005, after the China 50 ETF. Over the last few years, we continued to be the sort of innovator in the ETF market.

We spent quite a lot of time developing the gold ETF in this region. In 2006 October, we brought the golf ETF from the US to Singapore, and then in 2008, we brought the same gold ETF to Hong Kong and Tokyo.

What about the other smaller markets such as the Philippines?

There are markets such as Thailand and Malaysia that already have ETFs. The awareness of ETFs becomes higher and of course there are a lot of complication within the structuring of ETFs but at the same time I wouldn't say it is rocket science. The local fund management houses will be able to figure out how to do it, they have better idea compared to earlier years. We have moved back to our home and are focusing on offering products in Hong Kong and Singapore or potentially in Japan as well.

What is your strategy now in your home market? Are you working on more innovative products?

Yes, pretty much. When we look at the overall development, the very first ETF was developed in 1993, the SPDR. SSGA was the one who developed that with American Exchange.

Over the last 15 to 16 years, the ETF market growth has been exponential. Over the last five years before last year, the average growth rate in the global ETF market was about 40% per year. In 2008, the AUM of the global ETF market came down by about 10%. But as we know, the global equities market came down by about 40%.

There are two reasons why you have seen high growth rate of the ETF market. One is the benefit of the ETFs. Second, the widening of the product offering.

In the very beginning of each market, the first ETFs launched were large-cap based local ETFs. Over the last five to eight years, there has been a trend of broadening out of product offering all the way from equities asset class to different asset classes such as fixed income, commodities and even some FX asset class. You also see broadening out of different market exposure - not only large cap but also mid-cap and small-cap.

The benefits of ETFs include being very cost effective, very liquid, very transparent, more convenient. In which markets in Asia is it easier or harder to launch an ETF?

ETFs are listed on the exchange. The regulatory framework will form a very important role in getting a product running. Emerging markets with tighter constraints such as capital restrictions, currency repatriation restriction will make the ETF development relatively tougher.

Now the trend of the ETF development is moving to from local large cap ETF to overseas investments. So if you have a country with a currency or capital restriction, it will be very difficult to launch a product with an overseas exposure.

We also need to look at the depth of the market. If you are looking at large cap versus small cap or value versus growth or individual industry, you have to look at the depth of the market. The market needs to have enough universe to structure these. The Asian market is quite different from the US market which is a deep homogenous market. Asia is more challenging.

How were you able to list the SPDR in Hong Kong, Singapore and Tokyo?

This is another pioneering work that we have done. In all those three markets, this is definitely the very first time cross listing of a US-listed vehicle was done in Hong Kong, Singapore and Tokyo. We spent a long time lobbying with the local regulators.

We picked Hong Kong Singapore and Tokyo because the depository, the clearing house in all these three markets have an automated fungibility. The TTC is the clearing house in the US. It makes the cross listing more viable.

The April edition of AsianInvestor magazine will contain a feature on the ETF market in Asia.