BMO to follow Vanguard and exit Hong Kong’s ETF market
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Canada’s BMO Global Asset Management plans to exit from Hong Kong’s exchange traded fund market, and to offload its seven locally listed ETFs on to China Asset Management (Hong Kong), two people with knowledge of the matter have confirmed to Ignites Asia.
BMO has struggled to raise substantial assets in any of its ETF strategies, amassing just HK$2.86bn ($369.4m) across its seven ETFs.
Its largest Hong Kong-listed ETF, the BMO Asia USD Investment Grade Bond ETF, had assets of HK$1.7bn as of September 15, while its smallest, the BMO MSCI Asia Pacific Real Estate ETF, had just HK$8.4m.
BMO’s total ETF assets in Hong Kong are similar to those amassed by global funds giant Vanguard, which revealed last month that it too would be quitting the Hong Kong ETF market.
Over its eight years of operation in Hong Kong, Vanguard managed to pull in about HK$3.35bn in assets across six ETFs as of last month. The largest one, the Vanguard S&P 500 index ETF, accounted for roughly half of the total assets.
The companies’ retreat from Hong Kong’s stagnant ETF market underscores the challenges of trying to compete against a handful of large providers offering large China and Hong Kong-focused strategies.
Only six out of nearly 30 ETF providers in Hong Kong have more than $1bn in assets in their locally listed ETF ranges, with companies such as State Street Global Advisors, Hang Seng Investment Management, BlackRock and CSOP topping the list, according to Morningstar data.
China AMC (HK), which will acquire BMO Global AM’s ETF assets, is currently the fifth-largest ETF player in the market with $2.28bn across 13 strategies as of the end of last month, Morningstar data shows.
The Hong Kong ETF market is very skewed towards China and Hong Kong equities strategies in terms of assets under management, said Jackie Choy, Hong Kong-based director of ETF Research for Asia at Morningstar.
First-comer advantage has proven to be quite important in the market and these initial assets have been quite sticky, while new ETFs that have a similar exposure to existing strategies have not been as competitive, Mr Choy added.
Toronto-headquartered BMO Global AM, a subsidiary of Canada’s BMO Financial Group, is currently finalising the terms of the transfer of its Hong Kong-listed ETF range to China AMC (HK), according to the two people familiar with the matter.
BMO Global AM listed its first three products on the Hong Kong exchange — the BMO Asia High Dividend ETF, BMO Asia USD Investment Grade Bond ETF and BMO Hong Kong Banks ETF — in 2013.
The company followed this up with four other ETFs launched in 2016, namely the BMO Nasdaq 100 ETF, BMO MSCI Asia Pacific Real Estate ETF, BMO MSCI Japan Hedged to USD ETF and BMO MSCI Europe Quality Hedged to USD ETF.
BMO Global AM also runs one balanced mutual fund in Hong Kong, while its parent company, the Bank of Montreal, operates a private bank in the territory. These are believed to be unaffected.
Newcomers to Hong Kong’s ETF market had been hoping that an ETF Connect scheme would be set up, allowing Hong Kong ETFs to access mainland investors.
But instead, Hong Kong and mainland China regulators announced a less ambitious cross-listing master-feeder framework approving two pairs of ETFs approved to be sold in the respective markets.
Neither BMO Global AM nor ChinaAMC responded to Ignites Asia’s requests for comment.
Total market capitalisation for Hong Kong’s ETF market stood at HK$342.62bn at the end of August this year — down from HK$344.57bn at the end of August 2014.
BMO and Vanguard are not the only ETF providers to have exited the Hong Kong ETF market or to have delisted unsuccessful strategies in recent years.
In 2019, Hong Kong-headquartered Enhanced Investment Products pulled out of Hong Kong’s ETF market, citing the indefinite delay of the ETF Connect scheme, as well as the persistence of retrocession fees.
Difficulties in gathering significant assets also contributed to a number of ETF delistings in 2018. Mirae Asset Global Investments, GF Investment Management, E Fund Management, CSOP Asset Management and BlackRock all shuttered ETFs in Hong Kong that year.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.