JPM Stable Genius

USA

State Street lists Hong Kong tracker

Right in time for the trade war, State Street is listing a plain vanilla Hong Kong tracker that will go head to head with iShares’ EWH and Franklin Templeton’s FLHK. The SPDR Hong Kong ETF (ZHOK) will track a plain vanilla market weighted index of Hong Kongese large and mid-caps.

 

Curiously, the prospectus says ZHOK will use a sampling method to track the index. Meaning State Street’s portfolio managers will have discretion to cherry pick stocks. This picking and choosing will be done in a rules based way, the prospectus indicates, using a quantitative model. As the index is plain vanilla, one wonders why sampling rather than full replication has been chosen (RIC compliance?). Our research shows us that iShares Hong Kong tracker also uses sampling replication. Nonetheless, we expect ZHOK will function like any other plain vanilla country tracker.

 

Analysis – the first of many? And what’s the cost?

We suspect today’s listing is part of a broader suite of country specific ETFs from State Street, of which the other funds will be listed later this month. Listing a Hong Kong ETF on its own makes little sense — least of all for an institution State Street’s size. But why list country specific ETFs?

 

After all these years, iShares remains the dominant force in country-specific ETFs – despite charging steep fees. The iShares Hong Kong ETF, for example, has more than $2.5bn under management while charging a fat and tasty 0.49%. Our feelers tell us that State Street’s game is to underprice iShares on country specific ETFs. And using Solactive’s cheap indexes is one way to help them get there.

 

We’re interested to see how much ZHOK will cost. Franklin Templeton’s Hong Kong ETF charges a mere 0.09%. Meaning that if State Street is in the underpricing game, fees will have to be ultra low.

 

London

JPMorgan lists stable genius beta ETFs

JPMorgan may be crashing the ETF party 10 years late, but it is doing so with flare. In part of its effort to enter the London ETF market , the company is listing four new currency-hedged share class versions of its two existing “alternative beta strategy” ETFs.

  • JPM Equity Long-Short UCITS ETF – GBP Hedged (acc) (JLSP)
  • JPM Equity Long-Short UCITS ETF – EUR Hedged (acc) (JLSE)
  • JPM Managed Futures UCTIS ETF – GBP Hedged (acc) (JMFP)
  • JPM Managed Futures UCITs ETF – EUR Hedged (acc) (JMFE)

The ETFs try and bring hedge fund strategies to ETFs, by using “advanced factor based investing techniques”, a statement from JPMAM indicates. Managed Futures will charge 0.57% while Long-Short funds charge 0.67%.To provide the currency hedging, JPMAM will use a tolerance-adjusted hedging model. This means currency hedges are adjusted by JPMAM’s currency team whenever hedge ratios breach certain thresholds.