Hong Kong’s Securities and Futures Commission to consider active exchange-traded funds

The Securities and Futures Commission is considering a consultation on allowing active exchange-traded funds (ETFs) to be listed on the Hong Kong stock exchange, when it reviews the Code on Unit Trusts and Mutual Funds towards the end of the year, sources said.

Unlike passive ETFs, active ETFs allow asset managers to make decisions on the underlying portfolio allocation for extra returns. This combines portfolio management with the benefits of a low-cost and highly transparent exchange-traded structure.

Hong Kong has as many as 109 listed ETFs but the variety is still quite limited, with most being passive ETFs that track the same, few well recognised indexes such as the Hang Seng Index or the Hang Seng China Enterprises Index.

The commission has been in discussions to gauge interest levels and consider the regulations that might be needed.

With ETFs continuing to grab market share from mutual funds, active asset managers might be forced to re-evaluate their product strategies and review actively managed, smart beta or factor ETFs as their entry point into this high-growth segment. US management company Pimco and US financial services company State Street have already rolled out popular active ETFs.

“Active asset managers are increasing their comfort level with the ‘ETF wrapper’. They are finding ways to stay true to their active investment philosophy, but leverage the ETF wrapper to access a new distribution channel,” said Chris Pigott, the head of Hong Kong ETF services at US investor services firm Brown Brothers Harriman.