In the few months following the launch of the Hang Seng TECH index in July 2020, there have been a few ETFs that track the index newly listed in overseas exchanges. The soon to be listed Lion-OCBC Securities Hang Seng TECH ETF will be the first ETF in Singapore that replicates the performance of this. Before the ETF’s actual listing on the SGX on 10 December, we reach out to Lion Global Investors, the issuer of this ETF, to find out more about why investors could consider investing in Chinese technology companies, and how the new ETF has positioned itself to provide Singapore-based investors with the chance to seize opportunities presented by the 30 largest HKEX-listed technology companies.
Fundsupermart.com (“FSM”): What is the investment objective of this ETF?
Lion Global Investors (“LGI”): The investment objective of this ETF is to replicate as closely as possible, before expenses, the performance of the Hang Seng TECH Index using a direct investment policy of investing in all, or substantially all, of the underlying Index Securities.
FSM: What index does this ETF track?
LGI: The ETF tracks the Hang Seng TECH Index (“HSTECH”). HSTECH is designed to capture the growth potential of the 30 largest technology-themed companies listed on the Hong Kong Stock Exchange (HKSE) that have high business exposure to technology themes (Cloud, Digital, E-commerce, Fintech or Internet), with strong Research and Development investment and/or high revenue growth. The Index is free float and market capitalisation weighted with an 8% cap on individual constituent weighting.
FSM: What are some of the top holdings of this ETF?
LGI: As of end September 2020, the top 10 holdings of the Index are as follows:
FSM: Why should investors invest in Chinese technology companies?
LGI: With the rapid adoption of technology across industries, China is fast becoming a tech powerhouse. These new economy stocks are set to outperform the old economy stocks in the future, and the Covid-19 pandemic has further accelerated technology adoption and growth of these companies.
As announced in its latest 5-year plan in October 2020, China will be focusing on technology and innovation, and they will be striving for scientific and technological independence and self-reliance. This will mean increasing Research and Development spending as well as investment in “new infrastructure” including 5G networks, AI and data centres.
This ETF is designed to capture the growth of these China TECH-themed companies including those “homecoming” Chinese companies seeking a secondary listing on HKSE as well as unicorns looking to list on HKSE. These listings represent the new economy companies in the Hong Kong market.
These new economy stocks tend to have higher volatility. The single stock average volatility of the Hang Seng TECH Index Constituents is around 59.6%, versus the average volatility of the Hang Seng TECH Index which is 37.2%. As such, investing in this ETF that has 30 underlying stocks, offers better diversification and lower volatility than investing in a single tech stock.
Last but not least, the ETF is affordable, as investors can invest in this ETF with less than S$20. To make it easy for Singapore investors, this ETF can be traded on SGX in both S$ and US$.
FSM: Who is this ETF suitable for?
LGI: This ETF is suitable for investors who are seeking an ‘index-based’ approach to investing in a diversified basket of the 30 largest technology companies listed in Hong Kong which have high
business exposure to technology themes in a cost effective and easy to access manner; The ETF offers investors in Singapore an easy and affordable way to access a diversified portfolio of Chinese technology-themed stocks.
FSM: What is the expense ratio of this ETF?
LGI: The total expense ratio of this ETF will be capped at 0.68% per annum (inclusive of management fees) for 2 years from the inception of the ETF.
FSM: Does this ETF pay dividends? If yes, what is the dividend frequency?
LGI: Distributions, if any, will be determined by Lion Global Investors Limited. (The Manager). We may but currently do not intend to make distributions for the ETF. We will decide whether a distribution is to be made, if any, based on various factors, including dividend and/or interest income and/or capital gains derived from the investments of the ETF. Distributions will be paid in the base currency of the ETF (i.e. HKD). Distributions (whether out of income and/or capital) may have the effect of lowering the net asset value of the ETF.
FSM: Will investors be subjected to any dividend withholding tax?
LGI: As we do not intend to distribute dividend for this ETF, withholding tax will not be applicable.
FSM: What are the available trading currencies?
LGI: The base currency of the ETF is in Hong Kong Dollar (HKD), while the trading currencies of the ETF are denominated in Singapore Dollar (SGD) and United States Dollar (USD). This means that an investor has the option of choosing which currency (Singapore Dollar / United States Dollar) to pay with when buying the ETF.
FSM: Is this ETF classified as Excluded Investment Product (EIP) or Specified Investment Product (SIP)?
LGI: The ETF is classified as an EIP. Hence, this allows investors easy access to the ETF just like ordinary stocks, i.e. without the need to complete a Customer Account Review or take the SGX Online Education Programme.
FSM: What is the minimum investment sum/board lot size for this ETF?
LGI: The minimum trading board lot size is 10 units. The minimum investment sum during IOP is less than $20. This makes it accessible to investors with a small amount of capital.
FSM: How often will this ETF be rebalanced?
LGI: The ETF will be rebalanced on a quarterly basis in the following months. (March, June, September and December) The rebalanced Index will be implemented after close of trading of the HKSE on the first Friday of the rebalancing month and will be effective the following Monday.
FSM: Will a lack of market liquidity be concern for this ETF?
LGI: An ETF is as liquid as its underlying constituents. In the case of Lion-OCBC Securities Hang Seng TECH ETF, it tracks the largest tech-themed stocks on the Hong Kong stock exchange, and these underlying stocks are very liquid with high daily trading volume. We are of the view that liquidity is not an issue for this ETF.
FSM: How does your ETF stack up against its peers?
LGI: The Lion-OCBC Securities Hang Seng TECH ETF is the first ever ETF in Singapore to replicate the performance of the Hang Seng TECH Index, which is designed to represent the 30 largest technology companies listed in Hong Kong which have high business exposure to technology themes.
Disclaimer - Lion Global Investors Limited
This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. It is for information only, and is not a recommendation, offer or solicitation to deal in any capital markets products or investments and does not have regard to your specific investment objectives, financial situation or particular needs. You should read the prospectus and Product Highlights Sheet for the Lion-OCBC Securities Hang Seng TECH ETF (“ETF”), which is available and may be obtained from Lion Global Investors Limited or any of the appointed Participating Dealers (“PDs”), before deciding whether to purchase units in the ETF. Investments are subject to investment risks including the possible loss of the principal amount invested.
The performance of the ETF, the value of its units and any accruing income are not guaranteed and may rise or fall. Past performance, payout yields and payments and any prediction, projection, or forecast are not indicative of the future performance, payout yields and payments of the ETF. You should independently assess any information, opinion or estimates, graphs, charts, formulae or devices provided and seek professional advice on them. Any information, opinions, estimates, graphs, charts, formulae or devices provided are subject to change without notice and are not to be relied on as advice. The ETF may invest in financial derivative instruments for hedging or for efficient portfolio management.
The units of the ETF are listed and traded on the Singapore Exchange (“SGX”), and may be traded at prices different from its net asset value, suspended from trading, or delisted. Such listing does not guarantee a liquid market for the units. You cannot purchase or redeem units in the ETF directly with the manager of the ETF, but you may, subject to specific conditions, do so on the SGX or through the PDs.
Any dividend distributions, which may be either out of income and/or capital, are not guaranteed and subject to the Manager’s discretion. Any such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value of the ETF.
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