Hong Kong Stock Exchange

Hong Kong’s first money market ETF draws investors with expected 1.5 per cent return, low risk

The city’s first money market ETF is expected to see higher annualised returns in coming quarters, tracking gains in Hibor as US interest rates inch higher

PUBLISHED : Thursday, 19 July, 2018, 8:02am
UPDATED : Thursday, 19 July, 2018, 8:50am

Hong Kong’s first money market exchange traded fund (ETF) has drawn HK$1 billion (US$127.4 million) in investment from institutional investors, and its fund manager CSOP Asset Management expects additional capital flows amid the search for safe havens as the trade row between the US and China heats up.

The CSOP HKD MM ETF is benchmarked with the three-month Hong Kong Dollar Interest Settlement Rate, commonly known as Hong Kong Interbank Offered Rate or Hibor.

Higher yields as the city’s Hibor rate inches upwards is expected to be another drawing card for institutional and retail investors alike, the fund manager said.

The ETF debuted on the Hong Kong stock exchange on Wednesday and saw total trading volume reach HK$42 million by the market close.

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“This is not bad for a new ETF on the first day of trading,” said Melody He, head of sales and product strategy at CSOP, the overseas arm of China Southern Fund Management, one of the country’s largest asset managers.

“We have seen enthusiastic institutional response during the initial offering period [of this fund]. I think that shows investors are getting more interested in low-risk, more liquid assets at the moment,” she added.

Fred Zhang, senior portfolio manager for CSOP, said mainland China’s money market fund sector has thrived with the prevalence of e-commerce and digital payments. By the end of 2017, the sector has already reached 7 trillion yuan in size.

But comparatively, Hong Kong’s money market fund sector is still at an “infant stage”, Zhang said, as the city has more than 40 registered money market funds with total assets under management close to HK$138 billion.

“Now is a good time for Hong Kong’s money market to catch up, as investor interest is growing. ”

Investors pile into ETFs as Asian monetary policy diverges from US

Zhang expected money market funds to become a more popular cash management tool, as the city’s interest rate will follow the US higher after the Federal Reserve entered the rate tightening cycle, ending a long period of extremely low interest rates.

China is also continuing the deleveraging process, draining capital from the market.

The ETF, meanwhile, provides investors a convenient tool to invest in the money market, he added.

The money market fund is a type of open-ended mutual fund that invests in easily accessible and cash equivalent assets, like short-term debt securities. The fund is characterised as a low risk, low return investment.

Zhang said the ETF will invest mainly in Hong Kong dollar denominated short-term deposits. With a management fee of 0.3 per cent per annum, the fund is expected to achieve around 1.5 per cent annualised return after fees.

As the Hibor is expected to continue rising in the second half of the this year, Zhang said the investment returns will also increase.