BMO Global Asset Management plans to launch a second series of ETFs in Hong Kong tomorrow at a time when the Hang Seng Index is down 13% year-to-date and -20% over the trailing twelve months.
Co-CEO Rajiv Silgardo acknowledged the market weakness, but said BMO is looking at the longer-term. The four new products he believes are innovative in the context of Hong Kong-listed ETFs.
Two of the ETFs are the first in Hong to offer US dollar-hedged feature which avoids currency volatility: the MSCI Europe Quality and MSCI Japan.
The BMO Nasdaq 100 ETF is the first to offer exposure to large cap technology brand names such as Google, Apple, Facebook and Intel, he added.
The fourth, the MSCI Asia Pacific Real Estate ETF, provides an income stream by having 30% exposure to real estate investment trusts (REITs).
A question of performance
The four products are BMO’s second series of ETFs it launched in Hong Kong. The first three hit the market in November 2014 and have had less-than-spectacular results. In terms of performance, two of the three funds are in double-digit negative territory, with performance worse than the Hang Seng Index.
There is also the matter of traction. The three were launched in November 2014 and have been slow to gather assets. The most successful – the Asia USD Investment Grade Bond ETF -- has accumulated only $69m in AUM (HK$540m), according to FE data.
Silgardo said the results are in line with expectations for the first year.
“We realise [ETFs] are a long-term opportunity, so we are not overly fussed by performance. We want to bring products to market we believe have a place in an investment portfolio for the long run.
“We know we’re a newcomer and we’re building from scratch brand presence and market awareness. It will be a long game for us and we’re prepared to be patient.”
It is not only BMO's ETFs that face a challenging environment, but all passive index-trackers. In Asia, ETFs have trouble gathering assets for a variety of reasons. Only 9 ETFs out of 105 available for sale in Hong Kong have assets over $1bn, FE data shows.
A key reason is that the advisory business is still commission-based, and therefore advisors have less incentive to use the cheaper ETFs, which don’t pay retrocession fees. The fee-based model in which advisors charge for advice only and are not compensated for buying and selling products, is slowly gaining acceptance.
Ravi Sriskandarajah, managing director in Asia-Pacific said he’s perceived among private banks in the region “a high degree of interest in talking to ETF providers”, but he admitted the takeup of the passive product in Asia will be long and slow.