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China firms launch Hong Kong's first active ETF

By Asia Asset Management  
Jun 20, 2019

Two Chinese companies have teamed up to introduce Hong Kong’s first active exchange-traded fund (ETF), a money market fund that aims to provide a cost-efficient cash management tool for investors.

Unlike most ETFs, which are managed passively, managers of active ETFs can change sector allocations in order to outperform the underlying benchmark.

The ETF launched in Hong Kong by Beijing-based China International Capital Corporation (CICC) and the Industrial Commercial Bank of China (Asia) invests primarily in short-term deposits and money market instruments.

The ICBC CICC USD Money Market ETF has raised over US$120 million from institutional investors, CICC says in statement on June 18, when the fund was listed on the Hong Kong Exchanges and Clearing (HKEX).

According to the company, the ETF seeks to achieve a return in US dollars that is in line with prevailing money market rates. It expects the fund to achieve a prospective annualised yield of around 2.6% before fees.

The ETF is managed by China International Capital Corporation Hong Kong Asset Management, a CICC unit. Its Managing Director Lin Ning says in the statement that the fund is “the right tool for both retail and institutional investors who are looking for high-quality and cost-efficient cash management”.

Separately, a senior HKEX official says the new ETF was introduced in response to increasing investor demand in the city for a wider choice of investments.

“Actively managed ETFs combine the potential of outperformance with the benefits generally associated with ETFs – convenience, lower cost and intra-day liquidity,” Brian Roberts, the exchange’s senior vice president and head of exchange-traded products, says in a statement on June 18.

Including the new entrant, there are now 131 ETFs and inverse and leveraged products listed in Hong Kong.

HKEX says total turnover of listed ETFs more than doubled in the first five months of this year, from HK$62 billion ($7.92 billion) in January to HK$130 billion in May.

The investment adviser for the new ETF is ICBC Asset Management (Global), which is wholly-owned by Industrial Commercial Bank of China (Asia). The latter is the international arm of Beijing-based state-owned lender Industrial Commercial Bank of China, and had HK$976 billion of total assets at the end of 2018.

CICC had 275 billion RMB ($39.8 billion) of total assets as of December 2018.