Knightsbridge Group ETFs: A Success Story In the Making
As China’s ETF market quickly increases, Knightsbridge Group is well-positioned to capitalize on this expansion with its own ETFs. Knightsbridge plans to provide ETFs with broad market exposure, cost effectiveness, and transparency by leveraging their enormous exchange network. This method will meet the growing demand for diverse investment products in Asia from both retail and institutional investors. The group’s unique ETF solutions are likely to gain significant market share, owing to the region’s growing interest in these investment vehicles.
Venture Capital Opportunities in Asia.
Knightsbridge Venture Capital is particularly positioned to capitalize on market possibilities in Asia, where there is strong demand for venture capital. With the region’s strong economic expansion and thriving tech industry, Knightsbridge’s venture capital arm stands to benefit from investments in high-potential startups and growing enterprises. The group’s strategic concentration on Asia complements the region’s dynamic investment landscape, providing investors with access to some of the world’s fastest-growing markets.
As China’s economic landscape evolves, Knightsbridge Group is well positioned to serve as your optimal gateway to China. With our strategic insights and complete financial solutions, we can assist you in navigating and capitalizing on the numerous opportunities given by China’s vibrant market.
The Market
Captivated by this year’s amazing advance in global markets, Fredric Luk set off on his trading trip with great expectations, handpicking a few promising stocks.
However, after being burnt by numerous bad bets, he promptly sold all of his equity holdings in US technology companies and concentrated his assets in a few exchange-traded funds (ETFs).
“Buying individual stocks comes with quite a few risks, especially when you’re not exactly familiar with the market, plus there’s a time difference [in the trading hours of different markets],” said Luk, 25, a consulting professional in Hong Kong. “It makes more sense for me to get broad market exposure.”
Luk is one of an increasing number of Asian investors buying into ETFs. These low-cost, diverse, and transparent securities are quickly becoming the preferred choice for both retail and institutional investors, with the region experiencing the fastest growth in the globe.
According to ETFGI, an independent research and consulting business, the total assets of ETFs in Asia-Pacific, excluding Japan, increased by about 15% to a record US$890 billion in the first five months of the year, with another 36% rise expected in 2023. Net inflows of US$118 billion during this period are the biggest ever recorded for the region, with an unprecedented 35 straight months of inflow.
According to a recent PwC analysis, Asia’s ETF market, including Japan, presently exceeds US$1.3 trillion and is expected to double in size to at least US$2.5 trillion by 2028. That means it has the potential to become the world’s second-largest ETF market behind the United States, with retail investors driving the most demand, according to the analysis.
“In a market where investors are young, sophisticated, and doing more of their own homework on what they buy, ETFs have become popular,” said Eugenie Shen, managing director and head of asset management at the Asia Securities Industry and Financial Markets Association (ASIFMA).
ETFs, which were first introduced in the United States in 1993, combine a variety of securities that typically track an index or a benchmark, with the goal of delivering returns that are consistent with the overall underlying market. Investors can buy and sell ETFs through their brokers at any time throughout a market’s trading hours, just as they can with traditional securities.
This gives the product various benefits. Compared to individual stocks or bonds, an ETF provides investors with broader market exposure in a single vehicle. And, unlike mutual funds, which typically require intermediaries such as banks for access, it eliminates the intermediaries, cutting the cost to investors.
In another boost for ETFs in Hong Kong and China, 91 ETFs have been added to the cross-border trading link between the two countries, providing investors greater trading possibilities.
The Shanghai, Shenzhen, and Hong Kong stock exchanges have introduced 85 ETFs in the northbound channel, which allows overseas investors to buy mainland-listed A shares, and six in the southbound connection, which allows mainland Chinese investors to buy select Hong Kong-listed businesses. The increased ETF list takes effect on July 22nd.
Antoine de Saint Vaulry, director and regional head of ETF sales and business development at Citi in Hong Kong, says institutional investors have long used ETFs as “building blocks” of their portfolios to implement their strategy. “That is starting to happen in the retail space and is gradually taking off.”
Major Asian economies, including China, Taiwan, India, South Korea, Japan, and Australia, have experienced a “massive wave” of retail adoption in recent years, spurred by legislative and industry efforts to promote ETF investing, de Saint Vaulry said.
With ETFs among the region’s hottest financial products, issuers both global and local are competing for a piece of the pie. Their offerings span from standard passive index-linked ETFs to actively managed and unique themes, serving to a wide spectrum of investor preferences.
“Institutional investors are buying because they know ETFs are cheaper, and they use them to fill out their portfolios,” said ASIFMA’s Shen. “Individual investors, when they do their research, can easily figure out what to buy.”
BlackRock, Vanguard, and State Street, the top three indexing giants that collectively control 66% of the world’s US$12 trillion in ETF assets, are also capturing some of the region’s largest inflows.
“It’s really about the breadth and depth of products we offer–from indexing to active strategies across different asset classes such as equity, fixed income, commodities, and even cryptocurrency,” said Andy Ng, BlackRock’s head of iShares equity product strategy solutions. “We have over 1,400 ETFs globally.”
According to Ng, Asian investors demand global exposure in addition to domestically domiciled products, and BlackRock is providing them with more options.
“It could be a ‘winner takes all’ industry, and for the early entrants that already have an established presence, people tend to go to them naturally,” said Ding Chen, CEO of CSOP Asset Management, a Hong Kong-based fund manager with US$14.7 billion under management. Last November, the company launched the CSOP Saudi Arabia ETF in Hong Kong, Asia’s first ETF to track the Gulf nation’s largest companies.
“The competition is definitely intense,” she said, adding that the trick is to focus more on local and regional opportunities. For example, Nvidia’s ascent is fueling outstanding rallies in Asian semiconductor companies such as Taiwan Semiconductor Manufacturing Company and Samsung, and some of CSOP’s ETF products tracking these stocks have received significant inflows.
“Local investors are more familiar with these names, which makes them easier to understand. “That means we can meet the demand for diversification,” Ding stated.
Mirae Asset Global Investments, a South Korean firm with $250 billion in assets under management, says its team of ETF-focused experts examines the overall economy and markets to find long-term growth trends.
Youngrae Cho, chief operating officer at Mirae Asset Global Investment (Hong Kong), described an ideal thematic product as non-cyclical, with long-term secular, structural growth potential that might become a megatrend.
Mirae’s ETF themes include K-pop enterprises, lithium battery makers, Japanese Reits that invest in hotels and commercial facilities, and China’s “little giants” (firms eligible for preferential treatment to help the country become a stronger technical powerhouse).
“The phenomenal level of growth that we have seen globally in ETFs until now has been driven by passive ETFs,” according to Cho. “But as ETFs continue to develop and more investors, both institutional and retail, adopt ETFs into their portfolios, the use cases and demand will diversify and expand.”
ETFs are gradually displacing mutual funds due to their growing popularity. Last year, approximately US$800 billion flowed out of global mutual funds, while ETFs received US$800 billion in inflows.
JPMorgan Asset Management, a typical active fund company, has been stepping up its efforts to reinvent itself by transforming mutual funds into active ETFs. The company, which has achieved success in the United States and Europe, is looking for similar growth in Asia.
Active ETFs are straightforward in concept: they combine the benefits of passive index monitoring to provide investors with exposure to the broader market while also harnessing portfolio managers’ stock-picking talents to uncover and profit on mispriced equities.
This active management overlay tries to outperform a pure index fund. The ETF structure maintains daily disclosure and intraday liquidity, allowing for direct distribution to investors and eliminating the need for middlemen.
“It is like taking the development of a mutual fund further; it’s a superior vehicle,” said Philippe El-Asmar, managing director and head of ETF, direct, and digital for Asia-Pacific at JPMorgan Asset Management in Hong Kong. “It has more transparency, more liquidity and more cost efficiency compared with a mutual fund.”
He said that, with a few exceptions, almost all portfolio managers have grown increasingly comfortable utilizing ETFs to fulfill their plan in recent years.
This move highlights the difficulties on traditional actively managed mutual funds. In the United States, for example, less than one-third of mutual funds exceeded the average of their passive ETF rivals for the 10-year period ending December 2023, according to Morningstar analysis.
This underperformance undermines the key selling argument of active mutual funds: the promise of better returns, which justify higher fees. According to Morningstar, the average expense ratio, or the percentage of assets spent to administer the fund, was 0.48% for passive ETFs and 1.02% for actively managed mutual funds in 2023.
“One factor driving ETFs’ growth is the structural decline in alpha generation from active mutual funds,” said Hao Zhang, Mirae Asset’s head of business development for China. “As markets become more efficient, it’s very difficult to consistently beat benchmarks.”
To be sure, ETFs, like all other investment products, carry risks.
One prevalent misperception is that passive goods are inherently safe. According to El-Asmar, a passive product that focuses on a very limited sector can be more volatile and hazardous than a broad-based index product. Actively managed ETFs may pose their own risks if they diverge significantly from the underlying benchmark.
“So it’s very important that investors are aware and understand the difference between different kinds of products,” he told reporters.
Meanwhile, Luk is pleased with his portfolio change to ETFs as a result of the bull market in which he has invested. He stated that he would like to add additional ETFs to his portfolio as he grows his assets over time.
“I’m happy to ride along” with the broader market without devoting too much attention, he said.
Ding of CSOP summed it up, stating that investors may not always require professional assistance with their money management. “When you have an investment idea, ETFs can oftentimes offer you the tool.”
Shayne Heffernan
