UBS enters Hong Kong retail funds space

UBS has entered Hong Kongs retail funds market for the first time by introducing a commodities-linked guaranteed fund, which will serve as a beachhead for the firms line of structured funds, says Gary Hung, director in the risk management products team.

The firm has tapped Hong Kong retail investors for the past three years via 13 structured notes but it now wants to expand its reach by marketing mutual funds as well. "Based on discussions with our distributors and our own observations, funds can provide better market penetration," Hung says. "Many retail investors are more comfortable with a funds structure."

Hang Seng Bank and Bank of China will sell the guaranteed fund, and another local bank may come on board, Hung adds.

He says that despite the headlines about rising prices in commodities such as oil and gold, the Hong Kong retail space has few related funds products, so the firm decided to make its three-year commodities guaranteed fund the first of its Super Funds series available in Hong Kong. It is not selling this product elsewhere in the region, including Japan.

The fund offers a guaranteed coupon of 2% in six months, with total performance linked to the Dow Jones-AIG Commodity Index, which is composed of futures contracts of 19 physical commodities. The funds participation rate will be between 30% and 60%, to be determined on November 25. The US dollar-denominated fund is available for initial subscription by Hong Kong investors until November 18, with a $5,000 minimum investment.

Although this first fund guarantees the principal, Hung notes that guaranteed fund sales have been declining over the past year. UBS intends to position itself as a structured products provider, with guaranteed funds just one type of product on offer.