Hong Kong retail investors, pensioners to feel the pinch as Tracker Fund falls in line with US sanctions and out of sync with Hang Seng Index

Set up in Hong Kong 21 years ago, the fund is managed by State Street Global Advisors Asia, which must follow United States regulations

Tracker Fund is the most widely held investment by Hongkongers

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The US$13.6 billion Tracker Fund, Hong Kong’s largest exchange-traded fund, will stop adding new investments in sanctioned stocks to comply with a US executive order. Photo: AFP

Published: 5:00pm, 11 Jan 2021Updated: 4:44pm, 24 Feb 2021

US sanctions against certain mainland Chinese companies might hurt millions of retail investors and pensioners in Hong Kong after Tracker Fund, the city’s biggest and most popular exchange-traded index fund, said on Monday that it will not add new purchases in these firms to its portfolio.

While the fund was set up in Hong Kong 21 years ago, it is managed by State Street Global Advisors Asia, a unit of the Boston-based company, and must follow United States regulations. Its investment portfolio amounts to HK$105.3 billion (US$13.6 billion).

“The consequence of the Tracker Fund’s decision means it will no longer perform in line with the Hang Seng Index,” said Stewart Aldcroft, chairman of Hong Kong pension company Cititrust. “This will not be liked by some investors. In addition, US investors, including hedge funds, pension funds and others will be required to disinfect from Tracker Fund under the new US order.”

Tracker Fund is popular because it is simple to trade, it is cheap and because it tracks the Hang Seng Index. The more than 184,000 Hong Kong retail investors that bought the fund at HK$11.5 per share at its initial public offering in 1999 will have more than doubled their money as of Monday, when the fund closed at HK$28.12. Moreover, the city’s 12 Mandatory Provident Fund investment funds use Tracker Fund to make investment decisions, making it the most widely held investment by Hongkongers.

“Tracker Fund may not be able to continue to have the same strong performance as the Hang Seng Index because of the sanctions,” said Gordon Tsui, the chairman of industry body Hong Kong Securities Association. “It is possible some investors may call for a change in the manager to a non-US company, so as to escape the sanction requirements.”

The decision by State Street came after several Wall Street investment banks – Goldman Sachs, Morgan Stanley and JPMorgan – decided on Sunday to also delist 484 warrants and other derivative products tied to China Mobile, China Unicom and China Telecom, three of the Chinese entities targeted by President Donald Trump’s November 12 executive order, from the Hong Kong stock exchange.