Editorial | Sure win for investors in Tracker Fund
- Tensions between China and the United States mean Hong Kong’s most popular ETF will now be managed by a local firm, which is slashing fees that will benefit millions who hold the fund in their pension schemes
It’s about time Hong Kong’s oldest and largest exchange-traded fund is run by a local manager. And who is better qualified than Hang Seng Investment Management to run the Tracker Fund, a low-cost ETF that passively tracks the Hang Seng Index? The transfer of the mandate from State Street Global Advisors to Hang Seng will be more economical with lower fees for local investors, who include millions of Mandatory Provident Fund holders, and more politically stable, as it will be free from American interference, whether through regulations or sanctions.
State Street has done a good job managing the ETF for over two decades. But its management mandate and status as an American company became untenable in the ongoing tussle between China and the United States.
Last year, after former US president Donald Trump’s ban on American ownership of Chinese state-owned companies, State Street initially announced it would divest such stocks from TraHK’s portfolio. But rebuke from Hong Kong officials quickly forced it to back down. The widely followed benchmark has been dominated by mainland Chinese stocks, many of them state-owned.
TraHK, which has HK$111 billion (US$14.2 billion) of assets under management as of late March, is popular with the 4.5 million investors of the MPF. People have long complained about the high fees of MPF, especially with funds that are actively managed. A passive fund such as TraHK offers both easy diversification and lower fees.
The new mandate for Hang Seng should translate into even cheaper management fees. A wholly owned subsidiary of HSBC’s Hang Seng Bank, the fund manager has HK$184.2 billion worth of assets under management, including 48 ETFs and retail funds, making it Hong Kong’s largest ETF manager.
The new mandate will slash management fee to 0.022 per cent in the first three years, which will be further lowered to 0.019 per cent per year from the fourth year. That translates to a whopping savings of between 31 per cent and 40 per cent. Investors, especially MPF holders, can only cheer.
How ironic that a hostile American financial act turns out to be a blessing in disguise for Hong Kong, at least in this instance.