CSOP Asset Management is developing new exchange traded funds (ETF) products in order to diversify its offerings away from equity ETFs while keeping a keen focus on China.
CSOP started its ETF business in 2012 following the launch of China’s RQFII (Renminbi Qualified Foreign Institutional Investor) programme, the main product of which is the renminbi-denominated physical A-share ETFs.
The firm, founded in 2008, launched its flagship CSOP FTSE China A50 ETF on August 28 2012 and has since grown into one of the most popular ETFs in Hong Kong with assets under management (AUM) of 21.596 billion yuan. Since then CSOP has rapidly grown its suite of ETF products and established itself as the leading expert on China ETFs.
“What’s interesting is after we’ve established our footprint in Asia and around the world as a China expert, we now have a group of clients who really believe in our products so we’ve started to diversify away from China-only products and to other products that China-based clients would really appreciate,” says Melody He, executive director and head of department, ETF and Index Solutions at CSOP Asset Management in an interview with The Asset.
CSOP currently has nine ETFs in Hong Kong, which include an oil futures ETF (CSOP WTI Oil Annual Roll December Futures ER ETF), fixed income ETFs (CSOP Select US Dollar Bond Fund, CSOP China Ultra Short-Term Bond ETF, CSOP China 5-year Treasury Bond ETF), and a smart beta (CSOP China CSI 300 Smart ETF).
The launch of new products is in line with efforts by Hong Kong regulators and industry members to diversify the city’s ETFs away from the predominantly China H-share and A-share related products.
CSOP is now looking to launch leveraged and inverse ETFs following the announcement by the Securities and Futures Commission (SFC) last February 2016 that it will allow such products into the market.
The products have been popular in Japan, South Korea and Taiwan in recent years. Hong Kong initially was reluctant to allow the sale of leveraged and inverse ETFs in the market amid worries over investor protection. Both products use high-risk derivatives that require a more advance level of understanding on the part of investors, particularly retail investors.
CSOP expects to launch in July. Its leveraged and inverse ETFs will focus on emerging market themes.
Because the company is based in Hong Kong where investors are mostly overseas or foreign entities that focus on the China market, CSOP has to be more innovative with its product offering to meet investors’ requirements.
“We’re quite different from other ETF players in the region. Taiwan and Korea, for example, have very big ETF players. The difference for CSOP in Hong Kong is that most of the money that goes into ETFs is from overseas unlike in other markets where it is mostly domestic money,” He says.
This means that in terms of distribution CSOP had to build a network that can access other markets in Asia as well as in Europe and the US. Apart from Hong Kong, CSOP has offices in Singapore, New York and London.
“Our distribution has always been to the world rather than Hong Kong-centric. This is quite different from some of the other local markets where domestic distribution is most important for their business. For us international distribution is the most important,” He says.
CSOP is also focusing on investor education in order to promote awareness and knowledge about Hong Kong ETFs to their clients and investors.
“We definitely promote Hong Kong ETFs to enhance investor awareness and understanding about our products and ETFs in general. If you look at Hong Kong from a liquidity perspective majority of the products offered are still Hong Kong and China-focused, but that is changing,” He says.
