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Nasdaq launched two ETFs with Ping An Insurance in Hong Kong last year. Photo: Reuters

Greater adoption of ETFs in Hong Kong depends on more fee-based advisers, Nasdaq says

  • The fee-based model was a “critical” point in the growth of ETFs in the United States, according to Nasdaq’s Robert J. Hughes
  • More retail investor participation is needed for institutions to get on board
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Greater adoption of exchange-traded funds (ETFs) by Hong Kong investors will depend on the further development of the fee-based financial adviser community in the city, according to Nasdaq.

Robert J. Hughes, vice-president for global information services at Nasdaq, said Hong Kong has some way to before the city has a “truly vibrant fee-based financial adviser community”, rather than one built around advisers who work on commission.

“What we believe over time [is] financial advisers will turn more toward a fee-based model where they’ll receive one fee for all of the assets they manage,” Hughes said. “That was a critical point in time in the US market that spurred a lot of growth in the ETF market.”

Hughes was in Hong Kong on Tuesday to promote the Nasdaq Dorsey Wright brand in Asia.

As part of its business, Dorsey Wright creates model portfolios for trading baskets of ETFs, which are marketed to asset managers and financial advisers. The company is a registered investment adviser in the US providing research to financial advisers and investment managers and also oversees about US$1 billion in separately managed accounts.

ETFs are made up of a basket of securities, which oftentimes are designed to track an index or sector, such as the S&P 500. The first ETF in Hong Kong was introduced by bourse operator HKEX Group in 1999.

According to the Securities and Futures Commission, the market capitalisation of ETFs listed in Hong Kong more than tripled to US$43.3 billion in June 2017, making it one of the largest markets for ETFs in Asia.

The number of Hong Kong-domiciled ETFs has also jumped by 44 per cent since 2012, according to a research report released by the SFC last year.

Nasdaq launched two ETFs with Ping An Insurance in Hong Kong last year, including a thematic ETF focused on artificial intelligence and robotics.

However, the adoption of ETFs in Asia is generally seen as being in an early stage when compared with other parts of the world, such as the United States and Europe.

Asia accounted for about 22 per cent of ETFs globally in 2017, according to the SFC.

Global ETF assets equalled US$5.42 trillion at the end of February, according to First Bridge, a provider of ETF data and analytics.

Hughes said he would like to see more institutional investors in Asia add ETFs to their investment strategies, saying the pace of institutional adoption “is not fast enough”.

“Hopefully, over time, in the next couple of years we’ll start to see more adoption of ETFs,” Hughes said. “The core of that institutional adoption is built around retail participation in the market. In order for an institution to buy an ETF, it’s not possible for an institution to put US$400 million in an ETF that today has US$5 million in it.”

This article appeared in the South China Morning Post print edition as: ETF uptake depends on more fee-based advisers: Nasdaq
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