Tracking the Tracker

At the Investment Forums held in April and October each year, one of the queries frequently raised by members of the Staff Superannuation Scheme is about, quite understandably, the level of management fee charged by the fund managers.

Take the A50 China Tracker Fund (the Fund) as an example. The Fund, whose sole investment manager is Amundi Asset Management (Amundi), invests in one and only one Hong Kong-listed A50 China tracking exchange-traded-fund (ETF, so-called because it is a fund traded at the Stock Exchange similar to stocks rather than through fund houses or banks) called CSOP FTSE China A50 ETF (stock code: 2822.HK). This particular ETF is managed by CSOP Asset Management Limited (CSOP).

Members were sometimes under the impression that the management fee paid for investing in 2822.HK (at 0.99% p.a. of the net asset value) is charged by Amundi while in fact the said fee is charged by CSOP. Whether 0.99% is a hefty rate or not does not make any difference, as competing ETFs also charge management fee at similar level and the fee is already embedded in the purchase price of the ETF. Institutional investors like Amundi or individual investors who want to buy this ETF have to pay this fee to CSOP anyway. Analogy may be drawn from the real property market. The cost of buying a property includes the agency and other transaction fees as well as the value of the property itself.

A Scheme member can either personally buy the 2822.HK (or similar ETFs) with more flexibility in the timing and amount, or invest through the Fund managed by Amundi as part of the investment scheme for retirement. In either case, the management fee of 0.99% p.a. cannot be avoided since such fee has already been embedded in the price of the ETFs.

The actual management fee charged by Amundi for managing the Fund is only 0.05% p.a., reflecting the passive nature of their mandate. For more ambitious returns, for example, some hedge funds may charge as high as 2% p.a. flat management fee plus 20% of the profit as performance fee.

Amundi cannot decide the timing and amount in buying or selling the underlying 2822.HK. Because of the nature of the superannuation scheme, Amundi is not allowed to follow the market too closely but must buy or sell the right amount of 2822.HK for the Fund when it receives the monthly contribution or withdrawal notice, as the case may be, from the University. Scheme members should know that investing in the Fund is long-term investment to support some of their retirement needs and aggressive trading would not work to their advantage.

This article was originally published in No. 492, Newsletter in Feb 2017.

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