Flood of L&I ETFs launch in Hong Kong

Added 14th March 2017

Cleared by the regulator, four firms moved quickly to launch a total of 16 leveraged and inverse (L&I) ETFs tracking the Hang Seng Index and the Hang Seng China Enterprise Index.

Flood of L&I ETFs launch in Hong Kong

The issuers are China Asset Management, CSOP Asset Management, Mirae Asset Global Investments and Samsung Asset Management. All of them already issued other non-domestic L&I products last year.

Targeting mainly retail investors who bet on daily index movements, issuers like CSOP also noted that some institutional or high net worth investors can use inverse ETFs as a hedging tool.

The new listings follow the Securities and Futures Commission's greenlighting last December of applications to launch L&I products tracking Hong Kong equities and non-equity indices.

L&I ETFs use derivatives to amplify the returns.  A leveraged product doubles the daily performance of the index, while the inverse one returns its opposite.

All funds have an estimated annual average daily tracking difference of -0.01%.

Estimated ongoing annual charges for the 16 new funds, as per fund fact sheets:

China AMC: 1.50%

CSOP: 1.28%

Mirae: 1.28%

Samsung AM: 1.30%

Little interest for L&I ETFs

As of 31 January, the 12 L&I ETFs listed in Hong Kong had gathered only HK$531m of assets, according to the Hong Kong Stock Exchange. The products accounted for 0.2% of the overall ETF market.

Their issuers blamed the products' low popularity on being restricted to non-domestic underlying markets. Now they hope that local investors will pile money into the newly-listed L&I products, a trend seen in other Asian markets such as Taiwan and Korea.

They also hope to draw investors who used to buy the warrant and callable bull/bear contracts (CBBC), a derivative tool popular in the SAR for leveraging returns, but carrying the risk of a margin call.

Samsung AM said its future plan is to launch commodity related L&I products in Hong Kong.

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