Abstract

Value Partners VP was a listed fund manager founded in Hong Kong with assets under management of USD10 billion1 The company was an early adopter of using a value style investing strategy in Asia to actively manage funds To complement its more traditional fund management business VP ventured into exchange traded funds ETFs in 2009 ETFs were a highvolume and lowmargin business VP regarded them as complementary to its existing actively managed funds business as they helped smooth out revenue fluctuation In late 2009 VP launched the Value China ETF 3046 HK and listed it on the Hong Kong Exchanges and Clearing Ltd HKEx Initially this ETFs sales strategy focused on delivery to institutional clients After a slow start the strategy was quickly revised in favor of targeting retail customers through advisors and brokers This strategy had its own challenges for example a trading and shortterm mentality was prevalent among local market participants and a product knowledge gap in trading ETFs had to be bridged On 31 December 2012 three years after launch Morningstar awarded the Value China ETF a fivestar rating 2 VPs ETF business however had yet to achieve critical mass What could Value Partners do to increase the appetite for ETFs among Hong Kong retail investors And how could Value Partners make sure it would gain an advantage when demand for ETFs increased

Learning Objectives

The case describes the ETFs landscape in the Asia Pacific region particularly Hong Kong and outlines the opportunities and challenges in the ETF business there It also shows how a company with strong reputation regionally among institutional investors expands its clientele into the retail investor market The case also highlights the trends and possible future development of the fund management industry and the battle between the active and passive investment strategy The following are the key issues that can be discussed during the lecture The nature of ETFs and its benefits for retail investors The current landscape of the Hong Kong ETF market in terms of size asset types and geographical distribution Strategies to promote ETFs to retail investors who mainly pursue shortterm active stock picking strategies 1 Unaudited group AUM as of 30 November 2013 2 Morningstar a Chicagobased investment research firm provided analysis on funds stocks and markets Its onepage reports on mutual funds and ETFs were widely used by investors Morningstar rated stocks and funds on a scale from one to five stars with five stars being the highest