“Morningstar ETF Intelligence 2011” for Hong Kong was held on 5 September 2011. With over 100 delegates joining the luncheon, both Conrad Cheng, Chief Investment Officer of Lippo Investment Management and John Gabriel, Morningstar ETF strategist, started off the event by sharing their views on the latest development and investment strategies on ETFs.
As Conrad Cheng pointed out during his speech, the development of the ETF markets in Asia has traditionally revolved around the supply dynamics, as observed by the increasing number of new launches over the past years. On the other hand, demand for ETFs did not match up to the increasing supply, signifying a low acceptance rate by Asian investors. He further added that this phenomenon is not unique to Asia, citing U.S as a precedent when ETFs were first introduced there. ETFs only gained traction when institutional investors such as asset managers, hedge funds, pension funds and insurance companies began investing in these products.
At the moment, ETFs are employed by institutional investors mainly in long/short equities, leverage strategies and asset allocation, among other purposes. He feels that more innovative application of ETFs may need to surface to broaden acceptance and widen usage. This may lead to an increased number of innovative products being launched in the near future to address these needs.
With the diverse array of ETF products to choose from, fund selection becomes the critical factor for success. As a guide, John Gabriel listed six key questions that investors can take into consideration when choosing their fund; 1) the investment thesis; 2) suitability and risk assessment; 3) options available in the market; 4) understand its underlying fundamentals; 5) its role in the portfolio; 6) and other factors such as liquidity, taxation and tracking error et cetera.
John Gabriel also took the opportunity to emphasize the importance of understanding and evaluating counterparty risks. With different structures, investors are often exposed to different risks that can result in returns that may differ from their expectations.
Finally, the audience was presented with a panel forum between the two guest speakers, hosted by Anthony Chan, Director of BlackRock iShares Asian Research and Investment Advisory. The panel was engaged to discuss about the current investment opportunities and how they can be harnessed with the use of ETFs. Many investment ideas were brought up during the engagement and among those highlighted were gold, agriculture and currencies of countries with strong reserves.
ETF investors can certainly look forward to further insights as we strive to conduct more interviews with our guest speakers of the "Morningstar ETF Intelligence 2011" hosted in different Asian cities. For more updates, stay tuned to Morningstar sites and our ETF center as we bring you the latest coverage!
For presentation slides, please click here.