Hong Kong firm Convoy Asset Management has revealed plans to launch an exchange-traded fund online platform for local investors to trade US-listed ETFs, pending regulatory approval.
Alan Ng, director for business development and investment management at Convoy, told AsianInvestor the company was considering charging a flat annual fee to allow an unspecified number of ETF trades, or a per trade fee similar to a brokerage fee.
“We see ETFs taking off in the context of a fee-based business model,” Ng said. “However, we don’t see them as a replacement for mutual funds. Through ETF trading capacity, clients could access asset classes and investment strategies which may not be available in the mutual fund market. Better diversification and risk-return profile could be achieved."
Convoy is hoping to launch the online ETF platform in the second half of this year but would only provide US-listed ETFs, which Ng noted had greater diversity and better liquidity than Hong Kong's ETF market, which is dominated by Greater China-focused ETFs.
Convoy is considering adopting the Taiwan model, where ETFs are sold like mutual funds via distributors, which then trade ETFs on clients’ behalf and charge a fee of 1% of the investment amount. This model has proved successful in Taiwan, although Ng admits he is unsure whether it would work in Hong Kong.
“I think the Taiwan model might not work in Hong Kong. It is too convenient to trade US-listed ETFs in Hong Kong and the transaction cost is lower than in Taiwan. In Taiwan it's the norm to charge 1% for foreign stocks including ETFs through sub-brokerage business offered by banks or securities brokerage,” said Ng.
Convoy Asset Management at present has a securities dealing type 1 licence allowing it to distribute mutual funds, so it would need to present its ETF platform plan to Hong Kong's Securites and Futures Commission (SFC) to upgrade it to trade listed securities.
Ng said its plan to provide an ETF trading platform was not driven by client demand, because Hong Kong was still a market where funds are sold, not bought. Instead, Convoy ponts to the importance of ETFs in a fee-based fund advisory model, which it sees as a future trend.
“We will provide client education and a competitive compensation scheme to our sales force. The success of this platform will depend on the establishment of an eco system allowing more parties to earn a decent income,” explained Ng.
ETFs are growing in popularity in the region, with assets invested in ETFs in Asia ex-Japan hitting $118 billion this February, a rise of 4.4% from $113 billion in January, as reported.
About 91.3% of Hong Kong ETF assets are linked to the Greater China region, compared with just 45% in Europe. The SFC is considering allowing more offshore ETFs, including those from the US, to be cross-listed in Hong Kong.
Convoy is Hong Kong's largest IFA. Convoy Asset Management is its asset management arm, with more than $600 million fund under advisory in its own nominee platform for fund distribution.
Five years ago Convoy Asset Management started to provide discretionary portfolio management via an investment-linked insurance platform, with its AUM recently reaching $450 million. Last year it expanded to offer discretionary portfolio services in its own nominee platform, and has garnered $13 million AUM to date.