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Investment group Vanguard slashes fees for Hong Kong-listed ETFs

Investment group Vanguard on Monday slashed fees for its five exchange traded funds (ETFs) listed in Hong Kong, making them the lowest in the region, despite tepid asset growth.

The world’s second-largest asset manager said the total expense ratio (TER) would be reduced by 22 to 47 per cent, depending on the fund.

The expense ratio for Vanguard FTSE Asia ex-Japan Index ETF fell to 0.2 per cent from 0.38 per cent, while its SP 500 Index ETF and FTSE Developed Europe Index ETF dropped to 0.18 per cent from 0.25 per cent.

The reduction made the five ETFs the cheapest in each category in the city, Vanguard said in a statement.

The move came after BlackRock, the world’s largest asset manager, lowered prices of two Hong Kong ETFs in July. Management fees for the iShares MSCI AC Asia ex Japan Index ETF were reset at 0.28 per cent from 0.59 per cent.

Fee reductions have been increasingly frequent among fund managers globally. BlackRock reduced fees for 15 ETFs in US earlier this month, while Vanguard also cut prices of five funds in Australia in the same month.

“In the US there has been a downside trend of fund fees and it will gradually come to Hong Kong…. I expect it [fee reduction] is a trend not only in ETFs but the whole fund industry,” James Martielli, head of Asia portfolio review said at a media briefing.

Charles Lin, Vanguard’s head of Greater China, said the fee structure can be adjusted lower when certain economies of scale are reached. He added that the company is owned by its US-domiciled funds and ETFs and does not have to pay dividends to external shareholders, which also allows the company to hold expenses in check.

Hong Kong’s ETF market growth has been tepid compared with global peers.

Hong Kong ETFs authorised to invest in China’s securities markets under a policy initiative known as the RMB Qualified Foreign Institutional Investor, or RQFII, saw net outflows of 3.1 billion yuan in September, equivalent to 10 per cent of assets under management, adding to 600 million yuan in outflows in August, data from Morningstar showed.

Jackie Choy, Morningstar director of ETF research for Asia, said the roller-coaster ride of A-shares in 2015 still weigh on the growth of local ETF market.

Lin said short-term market movements will not affect the low-cost strategy for Vanguard, which launched its first Hong Kong ETF in 2013.

“Even though assets under management for the whole ETF market in Hong Kong is not big compared with other markets…we believe that in time the growth rate and fund size of the ETFs will catch up with other markets,” Vanguard managing director Linda Luk said.

For Hong Kong investors, cost is not the only concern when choosing investments, Choy said, adding that retail investors in the city tend to be speculative and focus on returns.

A survey by the Hong Kong Investment Funds Association showed while fees are one of the key factors investors consider, local investors also attach a lot of importance to the returns and risk profile of the fund.