BMO Global Asset Management is set to list three exchange-traded funds in Hong Kong next week – the Canadian firm’s first product launches in Asia – with an eye on the pending mutual recognition scheme.
The Hong Kong-domiciled ETFs will provide exposure to Asian investment-grade bonds, Hong Kong bank stocks and high-dividend Asian equities. They will physically replicate indices from Barclays and Nasdaq and are expected to start trading on November 13.
The firm has also started preliminary discussions with firms in China on possible partnerships, said Amit Prakash, Asia head of wealth management products at BMO Global. It was too early to provide more detail, he said, noting that the operational framework for mutual recognition has yet to be released.
“The big deliverable for us was to establish an investment platform in Hong Kong,” added Prakash. “The second part is an ongoing discussion with potential partners that we might work with in China as and when the market opens up.”
BMO Global AM had last year set out its plans to AsianInvestor for building a team in the region and launching HK-domiciled funds with a view to harnessing cross-border opportunities. The firm already had a foothold in China in the form of a 28% equity stake in Shanghai-based Fullgoal Fund Management that it acquired in 2003.
BMO Global has built a four-strong investment team comprising two portfolio managers (Keith Taylor for fixed income and Clarence Chan for equities), a product developer and Prakash, who contributes on investment strategy. It has a total of 10 people in Hong Kong, including sales and marketing staff. There are no current plans for further additions.
Two themes permeate the trio of new products: the idea of income distribution and exposure to Asia’s growth story, said Prakash, adding that BMO wants to boost demand for ETFs listed in the region.
The BMO Asia USD Investment Grade Bond ETF tracks the performance of the Barclays Asia USD Investment Grade Bond Index. As the product invests in US dollar-denominated bonds, there is no impact on currency movements as the Hong Kong dollar is pegged to USD.
The BMO Hong Kong Banks ETF tracks the Nasdaq Hong Kong Banks Index, providing exposure to 10-20 banks. And the BMO Asia High Dividend ETF seeks to track the Nasdaq Asia ex-Japan Dividend Achievers Index. Both equity ETFs will distribute dividend twice yearly.
The total expense ratios are 0.45% each for the two equity products and 0.35% for the bond ETF.