Friday, July 14, 2006

Frustration with Funds

I am finding that the range of low cost no-load funds in Hong Kong is extremely limited. In fact, so far I have identified precisely three such funds. All the other funds which are available to retail investors are actively managed funds which charge a front end load. MERs are typically in the 1.5-2.5% range and the front end load is usually 2% (if you negotiate down from the advertised 5-5.5%). To make matters worse, many also charge exit fees. This is pretty outrageous and is a sad reflection on both the Hong Kong fund management industry and Hong Kong investors' understanding of the effect of such charges on their wealth. This may also explain why the penetration rate for funds in Hong Kong is low by developed market standards.

I have looked at the no load funds which are available (TraHK which tracks the Hang Seng Index and China Tracker and A50 China Tracker which track indicies relating to China shares). I hold TraHK. The other fund is the AHL Diversified Futures Fund which has no load but a quite steep MER and a trailing fee for the first 3 years. The AHL fund has averaged about 13% pa after fees and the returns appear to have a low correlation with general share market movement. I am having a close look at this one.

I have looked into some of the low cost funds which available in other countries and run into a brick wall - the fund managers will not sell to me because I am resident in Hong Kong unless I invest a very large sum of money in each fund (typically US$100,000). I have never been given a reason for the refusal. I will keep looking but I am starting to get rather disillusioned with the whole exercise.

As much as I hate the front end load and the high MERs, I feel that I need to invest in some of these actively managed funds. The alternatives leave me with too little diversification in the private portfolio.

In an ideal world, I would invest directly in stocks and create my own index or theme portfolio. Unfortunately, the terms of my employment prohibit dealing in listed securities (index tracking funds excepted).

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