BlackRock undercuts rivals with low-cost Hang Seng TECH ETF

Sep 17th, 2020 | By | Category: Equities

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BlackRock has launched a new ETF in Hong Kong providing exposure to the innovative Hang Seng TECH Index.

Rimmo Jolly, APAC Head of iShares

Rimmo Jolly, APAC Head of iShares.

The iShares Hang Seng TECH ETF has listed on the Stock Exchange of Hong Kong and is available with HKD (3067 HK) and USD (9067 HK) trading lines.

Rimmo Jolly, APAC Head of iShares, said, “The launch of our iShares Hang Seng TECH ETF has prompted an encouraging response from wealth clients and asset managers.

“BlackRock is fully committed to developing ETF markets in the region, and we will continue to expand our local iShares product offerings to offer investors an even more diversified range of ETFs previously unavailable at the local level.”

The fund is the fourth ETF to track the in-demand Hang Seng TECH Index following the introduction of funds by CSOP Asset Management, China Asset Management Company, and Hang Seng Investment Management in the past three weeks.

Although it enters an increasingly crowded field, the ETF’s expense ratio of 0.25% – less than half that of its cheapest rival – makes it a compelling option among Hang Seng TECH-linked products.

The CSOP Hang Seng TECH Index ETF (3033 HK), ChinaAMC Hang Seng TECH Index ETF (3088 HK), and Hang Seng TECH Index ETF (3032 HK) have expense ratios of 1.49%, 0.60%, and 0.87%, respectively.

Index methodology

The Hang Seng TECH Index consists of Greater China-incorporated stocks that specifically have high business exposure to the internet, fintech, cloud computing, e-commerce, and digital technology themes. Companies must also be “technology-enabled” (i.e. operate primarily on an internet or mobile platform) or have an R&D expenses-to-revenue ratio that is greater than or equal to 5%, or revenue growth that is greater than or equal to 10%.

The 30 largest stocks as ranked by market capitalization that meet these criteria are selected to form the index. Constituents are weighted by free-float market capitalization, subject to a cap of 8% on any individual stock. Major positions currently include well-known Chinese names such as Xiaomi, Meituan Dianping, Alibaba, Tencent, Sunny Optical, JD.com. Other familiar holdings include Lenovo, NetEase, and Ping An Healthcare & Technology.

In anticipation of fintech giant Ant Financial’s upcoming flotation and with other high-growth tech stocks in the IPO pipeline, the index methodology includes a ‘Fast Entry Rule’ to facilitate fast-tracked inclusion for suitably qualified potential members.

Tech-driven Chinese growth

Science and technology industries have been key drivers of China’s economic growth in recent years, and analysts expect this trend to continue or accelerate in the future.

The ascent of Chinese technology companies has been reflected in the sector’s increasing prominence in stock market indices. China’s weight in the MSCI Asia ex-Japan Index has more than doubled over the last five years, primarily driven by the technology sector which has boosted its index share from 5% to 23%. Within China itself, the technology sector now constitutes nearly half of the MSCI China Index.

The number of tech companies listed on the stock exchange of Hong Kong has also grown by 19% since 2017, facilitated by a relaxation of secondary listing rules, with the sector now representing one-third of the exchange’s total equity market capitalization.

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