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The best and cheapest way to get exposure to Hong Kong

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In our last post, we talked about the Hong Kong markets and how undervalued it was in reference to its historical 7 year price-to-book chart. You can read it here if you have missed it:

How cheap is the Hong Kong market? [Hang Seng Index 7 Year Valuations]

Getting exposure to a specific country is best done through a low cost index fund or ETF.

Hong Kong’s hidden gem – the Tracker Fund of Hong Kong [SEHK:2800]

The history of the tracker fund is unique and worth telling.

In 1998, the Hong Kong Government intervened dramatically to restore confidence to the be-sieged financial markets and acquired a substantial portfolio of Hong Kong shares during the Asian Financial Crisis.

To minimise disruption to the market from a large disposal of its holding, the Government chose instead to IPO of the exchange-traded fund which Asia ex-Japan’s first physical ETF.

The fund’s goal is to provide investment results that closely correspond to the performance of the Hang Seng Index.

Tracker Fund Characteristics

The tracker fund is listed in Hong Kong and its ticker code is 2800.

The most important thing  to note about about the fund is its management fees which is only 0.10% (or 0.09% to be exact)

This compares extremely favorably to the iShares MSCI Hong Kong ETF which has an expense ratio of 0.5%.

This is a difference of more than 5 times.

To give you a relative idea, the annual expense ratio of the SPDR Straits Times Index ETF is 0.30%, while the Nikko AM Singapore STI ETF has an annual expense ratio of 0.33%.

The fund is also much bigger with AUM of over USD $10 billion vs the iShares MSCI Hong Kong ETF which post assets of about USD $2 billion.

Does it pay dividends?

Like Singapore, Hong Kong has no dividend withholding taxes and investors will not have to worry about pesky dividend withholding taxes of 30% that plight US ETFs.

The fund’s objective is to pay dividends semi-annually. As of the 29th November 2018, it has a dividend yield of 3.56%.

Dividend history of fund

Ending Thoughts:

One of the rare instances whereby you can get something that is both “cheap” and “good” if you are looking for Hong Kong exposure because you think the markets are cheap.

The “why” of why its cheap is easy enough to understand given its history and the need for the government to reduce its exposure to the shares acquired during the Asian Financial Crisis.

As a result of this – investors are able to benefit from access to a low cost index fund solution with minimal hassle and tax efficiency.

You can learn more about it on its official website:

https://www.trahk.com.hk/eng/

Disclosure: The author is not vested in the above fund.

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