Deutsche Bank closing 16 ETFs in Hong Kong

Move to delist such funds with low demand follows BlackRock's

HONG KONG • Deutsche Bank's asset management unit is closing 16 exchange-traded funds (ETFs) in Hong Kong, following BlackRock in delisting ETFs with low demand.

The 16 Deutsche Bank X-trackers ETFs ceased trading on Wednesday, according to a Hong Kong exchange filing. Most of the funds have assets of less than US$40 million (S$55 million).

The closures highlight the challenge of operating ETFs in markets where investors have yet to be persuaded by their allure. While the US$4.5 trillion global ETF market is setting new asset records almost every month, Hong Kong is bucking the trend - investors have pulled money from ETFs this year even as equity prices in the former British colony climb to a two-year high.

Ms Melody He, head of ETF and index solutions at CSOP Asset Management, said: "Deutsche Bank was one of the early adopters of ETFs in Europe, but Hong Kong is at a slower stage of development and client needs are different here.

"Distributing ETFs is harder in Asia and they may not have seen enough demand."

Money flowing into United States equity ETFs increased by 7.5 per cent or US$177.6 billion this year. In Hong Kong, assets dwindled by 6.6 per cent or US$2.3 billion.

Mr Chris Pigott, head of Hong Kong ETF services at Brown Brothers Harriman, said Hong Kong's ETF market is hampered by factors, including the use of a commission-based fee model where banks or other distributors receive higher fees for selling active funds rather than ETFs.

The ETF closures include 10 funds on China's CSI300 Index covering sectors such as banking, healthcare, financials and energy. BlackRock, the world's largest money manager, has been shutting down funds in Hong Kong, most recently earlier this year. Six of those had also tracked sectors on the CSI300 index. BlackRock and Deutsche Bank still operate ETFs in Hong Kong.

"Most ETFs in Hong Kong are Greater China-based and a handful of those are already successful," said Mr Pigott. "It is tough to differentiate so I could see why they may want to clean up some of those products."

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A version of this article appeared in the print edition of The Straits Times on July 15, 2017, with the headline 'Deutsche Bank closing 16 ETFs in Hong Kong'. Print Edition | Subscribe