Why Buy Lion–OCBC Securities Hang Seng TECH ETF?
Lion-OCBC securities Hang Seng Tech ETF (HST.SI) listed on 10Dec2020 at HK$7.75 issue price or SGD$1.33.
At this moment of writing, it is trading above the IPO price. (chart shown below)
This article is to describe what it delivers for you as an investor and how it compares to alternatives.
Get diversified investment across 30 HK Tech companies
This ETF covers leading technology-themed companies across the information technology, industrials, healthcare, consumer and financials sectors.
In the TOP 10 are names that include
- Alibaba Group (SEHK: 9988), the largest online marketplace where people can conveniently buy and sell goods online.
- Meituan-Dianping (SEHK: 3690), a super app which I've used before on my trip to Hangzhou to know more on dining/restaurant deals and reviews.
- Tencent Holdings (SEHK: 0700), who runs the WeChat messaging platform and is an investor into many technology unicorns.
Top holding is Sunny Optical Technology who supplies to Apple iPhone.
I must admit I haven't heard of them before looking into this ETF.
How to quickly understand fund objectives
The investment objective of the ETF is to replicate the performance of the Hang Seng TECH Index.
However, the Lion-OCBC Securities Hang Seng TECH ETF makes sure each stock weight is capped at 8% of the entire fund, with rebalancing performed quarterly.
Expense ratio is capped at 0.68% per annum for 2 years from the inception of the Fund
There is an IPO stock "fast entry mechanism" within this ETF.
This means a NEW IPO, if it fits criteria, can be added to the Index if its market cap ranks among the Top 10 of the existing constituents at the market close of its first trading day. The addition will normally be implemented after the close of the 10th trading day of the new issue.
Personally, this could be interesting if ANT Financial or DIDI Chuxing which could be worth $60B comes onto the market. However, I've speculated on HK IPO before and didn't turn out well and that company was #30 Yixin Group Ltd. Hence, I'm not certain it is an advantage.
Lion–OCBC Securities Hang Seng TECH ETF VS CSOP Hang Seng Tech ETF
CSOP Hang Seng Tech ETF 3033 HK uses a full replication strategy
It was the first to launch a Hang Seng TECH Index ETF.
It is physically replicated and comes with a management fee of 0.99%; annual ongoing charges are estimated to be 1.05%.
Lion–OCBC Securities Hang Seng TECH ETF VS iShares Hang Seng Tech ETF
iShares Hang Seng Tech ETF 3067 HK is managed by BlackRock Inc and a passive index ETF.
Some investors have cited it as a superior alternative because of the management fee of only 0.25%!
There is a key difference and is a reason why fees are low.
It is stated in the prospectus that the manager may use instruments which include futures contracts, index futures contracts, options on futures contracts and options to synthetically replicate the index.
There could be different risk with derivatives.
Below is an indication of the index holdings with Xiaomi Corp and Meituan Dianping as top holdings. It appears to me to deviate from the Hang Seng Tech Index.
How can you buy Lion–OCBC Securities Hang Seng TECH ETF?
You can buy this ETF in USD or SGD but if you are based in Singapore, having it in SGD makes it simpler unlike the other 2 ETF.
You can also buy it using OCBC BCIP plan to dollar cost average.
Lastly, it is SRS approved.
Summary
Personally I think the ETF is a competitive offering.
The main issue is if you believe that HK technology is a worthy investment for your portfolio.
From January 2015 to July 2020, the Hang Seng TECH Index has outperformed the Hang Seng Index by approximately 130%.
Quite possible HK Tech space offers a higher growth as compared to HK Banking stocks for example. And in many ways, they are not inferior to US tech players.
As compared to buying an individual HK tech stock like Alibaba alone, I'd much prefer this method for this diversification and simplicity.
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Sources
https://portal.iocbc.com/iwov-resources/sg/ocbc/ospl/PDF/products-and-solutions/etf/lgi-ocbc-hang-seng-tech/pitchbook.pdf
https://portal.iocbc.com/products-and-solutions/etf/lgi-ocbc-hang-seng-tech.page
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