After winning approval in June to market its exchange-traded funds to professional and institutional investors in Hong Kong, US-based Direxion this week added a second salesperson in the city.
Grace Chiu started yesterday as a vice-president reporting to Drew Blackburn, who joined as head of Asia from Credit Suisse in December. She previously worked at Taiwanese firm Horizon Securities in Hong Kong covering institutional and professional investors, and will provide Cantonese- and Mandarin-speaking sales support.
Blackburn had previously marketed equity-linked products to professional and institutional investors as part of Credit Suisse’s Asia-Pacific prime services team under Matt Pecot.
AsianInvestor broke the news in October that the firm was seeking a licence to operate in Hong Kong.
The New York-based firm offers ETFs other than inverse and leveraged products, but the focus will be on those types of funds in Asia, says chief executive Daniel O’Neill during a trip to the region this week. The aim is to target tactical investors, although O’Neill is keen to stress they are not “evangelists for trading” – rather they look to sell to clients already experienced in shorter-term investing.
But he notes that “the financial crisis has caused a lot of people to take another look at portfolios and perhaps consider going more tactical”, in view of the increase in correlation across asset classes in 2008/2009.
Another point O’Neill makes is that one argument in favour of strategic/long-term investing is that when there is “a lot of friction in the markets” – that is, trading costs are higher – the ability to be tactical is “impaired”. But more recently, he argues, a lot of that frictions has eased off – at least in Asia and the US, if less so in Europe.
Asked the average holding period for Direxion ETFs, O’Neill says it shortens as market volatility rises. Hence, in the teeth of the 2008/2009 crisis, the average was less than a day, with certain products seeing 500% daily turnover. But as volatility has fallen since then, holding periods have risen, so most of the firm’s ETFs are seeing holding periods longer than a day.
For the time being, Direxion plans purely to market US-listed ETFs in Asia, but remains open to the idea of cross-listing or domiciling products in the region down the line.
It is also looking at the potential of setting up joint ventures with Asian fund houses with a view to both advising them on inverse and leveraged products and sourcing regional product to sell to US clients. Blackburn notes that some local ETF providers in Asia have expressed interest in potentially working with Direxion.
“We’re trying to understand what’s possible from a regulatory perspective and what’s attractive from market perspective, and will take decisions on this over the next year or two,” says O’Neill.
US-listed ETFs can raise liquidity and valuation issues for Asia-based buyers trading them outside US hours. But O'Neill says most Asian investors are aware of the potential opportunities available from trading US ETFs when the American market is closed, and also of the potential pitfalls.
Direxion has a 47-strong range of ETFs with an average total expense ratio of 95 basis points and $7 billion in total assets under management.
In Asia Pacific, inverse and leveraged ETFs are only permitted in Australia, Japan and South Korea, and have proved particularly popular in the latter country. However, it remains to be seen when these products will be listed in the other two main Asian ETF markets, Hong Kong and Singapore.