Published by Fund Selector Asia – 21st Sep 2018
This week the regulator approved three Hong Kong-domiciled products, which are aimed at eventual sale to mainland investors via the Mutual Recognition of Funds scheme.
UBS Asset Management’s Global High Yield Bond Fund, Global Select Equity Fund, and Systematic Allocation Portfolio Medium Classic Fund were approved by the Securities and Futures Commission (SFC) on 17 September.
The Hong Kong-domiciled fund range is eventually intended for sale to mainland investors through the Mutual Recognition of Funds programme, Markus Egloff, head of wholesale client coverage for Asia Pacific, told FSA in an email reply.
“The MRF channel is one that we believe will become very important in the near future. The approval of our Hong Kong-domiciled funds via the MRF scheme will open up long-term opportunities to access mainland China investors.”
Hong Kong-domiciled funds must have a one-year track record in the market before entering the MRF platform.
The firm’s Systematic Allocation Portfolio Medium Classic Fund is expected to launch by end-October. The fund is a multi-asset strategy aiming to deliver interest income and capital growth by investing in global equities, bonds and cash or cash equivalent instruments, according to the firm.
Its Luxembourg-domiciled equivalent, launched in mid-July, invests 43% of assets in bonds, nearly half of which are issued by corporates. Another 55% of assets goes to equities, which breaks down into 20% exposure to US stocks, followed by 6% in the Eurozone and 5% in emerging markets, according to fund factsheet as of 31 July.
The manager noted in the factsheet that the fund relies on an in-house quantitative model to reduce human bias in equity allocation. The fund is expected to be less effective during periods without notable upswings or downturns in the market.
Egloff did not reveal the precise launch date for the other two funds but said they will be launched “in due course”.
MRF slowdown
UBS AM is yet to offer any products to investors on the mainland via the MRF scheme.
In 2018, the MRF has had lackluster sales of northbound(Hong Kong-domiciled) funds, showing eight consecutive months of net outflows since December last year. Year-to-date, northbound funds had a total net outflow of RMB 3.06bn ($450m), according to data from China’s State Administration of Foreign Exchange.
The northbound product range is dominated by Hong Kong, China and Asia-Pacific strategies. To date, there are only two approved global equity products: the Amundi HK Growth Fund and the BOC-Prudential Global Equity Fund, FSA reported earlier.
Rule changes?
Earlier this week, Hong Kong’s Securities and Futures Commission (SFC) said it has considered some modifications to facilitate asset managers in the scheme. One possible change is to allow delegating investment management functions to anyone outside of Hong Kong.
“We are well aware that the [overseas] delegation model could be more efficient, particularly for large fund houses with a global presence,” noted Ashley Alder, SFC chief executive officer, in a recent speech for the Hong Kong Investment Fund Association, adding that the SFC is discussing the topic with the China Securities Regulatory Commission (CSRC).
“We are now actively re-evaluating the delegation policy, including whether it might be allowed for these global and non-Asian funds,” he added.
Another change involves inflows from mainland investors. The MRF scheme allows managers to gather up to 50% of each fund’s total assets from mainland investors.
Alder said the SFC is aware of arguments in favour of relaxing this limit, but as of now, the total value of funds sold to mainland investors under MRF is still well below 50%.
Any changes of rules would be subject to the decision of the CSRC, which has the authority in approving the distribution of northbound funds on the mainland.
