ETF provider of the year: CSOP

Asia Risk Awards 2017

Melody He, CSOP

Taking a longer-term strategy is not a concern for CSOP Asset Management’s head of exchange-traded funds and index solutions, Melody He. The issuer launched its first smart beta ETF six months ago, and although the fund is still small at around $30 billion, He sees regional interest in the product growing as Asia investors follow their contemporaries in the US and Europe away from stock picking.

She explains that many US investment advisers are supporters of smart beta funds because they are low cost compared with actively managed products offered by private banks. “In Asia it is still a bank-driven wealth management platform, but it is changing. There are now a lot of independent investment advisory firms in Asia and [the sector] is growing year on year,” says He.

Along with its smart beta product, CSOP has launched a total of six ETFs since 2016 including the first ETF that uses a smart methodology to roll oil futures, which has been invaluable for lowering the contango costs inherent in the product.

Market-makers who work with the asset management company praise its consistency and commitment to promoting its products.

“Their management is very aggressive and active in the ETF industry,” says Kevin Kwok, an executive director for market-making equity derivatives at Haitong International Securities Company. “For example they launched four products in March of this year to link with the Hang Seng Index, the HSCEI Index and the China Enterprises Index.”

When CSOP released leveraged and inverse ETFs based on the Hang Seng and HSCEI indexes, it was among several to do so; four issuers launched the products on the same day and one issuer a few days later. However the asset manager was able to surpass the competition and accounted for 35% and 41% of the overall market capitalisation and turnover respectively.

Furthermore the products have consistently ranked as four of the top 10 most traded exchange-traded products on the Hong Kong Stock Exchange.

To support these products and educate investors, CSOP has set up an area on its website that allows clients to compare different strategies – such as using momentum to weight portfolios to the best-performing parts of the market or relying on leveraged or inverse products – and sets parameters to see how they have performed over the past three years. The initiative is being led by a new hire who has experience in managing these products in Korea.

Elsewhere, CSOP has added an ETF economist to its team responsible for looking at fund flows, devising the sales agenda and monitoring the market. There have also been hires in capital markets boosting the sales and products teams.

“We have obviously made that commitment on the ETF side to continue to support the business on the personal side. We are among the leaders in the Hong Kong ETF market in terms of turnover and with new people added we continue to speak to different external clients,” says He. “Traditionally CSOP has focused on the institutional client space and also the Hong Kong retail space, but because of our new coverage we have expanded the sales coverage to retail clients in China who are beginning to diversify their assets.”

The extended teams are being used in order to monitor ETF activities in what He believes is a level of detail that is unique to CSOP. The asset manager can now see the bid/ask spread for all 15 of its products and who is trading them. It also has partitioned its data into different categories – such as retail, brokers and institutions – so that it can have better visibility over its business. This use of data has been appreciated by CSOP’s clients, who welcome the responsiveness of this market information.

“They are obviously very responsive when there are big changes to the fund so we have been very happy trading their products,” says Daniel Ku, head of ETF trading at Optiver. “In terms of managing risk, it is very important to be on top of when there are any announcements and CSOP are usually very good with that.”

Business growth at CSOP has also received a boost by the company’s investment in automation in two areas: on the capital market side and in portfolio management.

“If we see a category of investors who used to trade our products a lot and don’t trade any more we can spot that and further investigate,” He says. “This helps the salespeople to better market our products and has allowed us to pick up extra business in terms of turnover for our products.”

Looking ahead, CSOP is developing project-based ETFs with various governments and state-owned enterprises in the region. The partnerships involve transforming large corporate holdings into ETFs and allowing the holder to retain the ETF while simultaneously marketing the funds. There are also plans to issue more leveraged or inverse products in the commodities space and across other asset classes.