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Is Management Fee Relevant to the Popularity of an ETF?

Investment decisions are based on many factors. While many may believe that choosing an instrument with a lower rate of management fee is a smart decision, this is not necessarily the case. Let’s look at the four China A50 exchange traded funds (‘ETFs’) listed in the Hong Kong stock exchange tabled above.

Note that the first three ETFs (2823.HK, 2822.HK and 2832.HK) are all charging 0.99% p.a. on the asset-under-management, while the last one, the latest ETF from Amundi (2843.HK), charges only 0.48% p.a. However, even if this ETF mimics the same underlying index—FTSE China A50 Index—as the others, its lower management fee has not attracted too many investors, as is evidenced from its average daily trading volume and average daily turnover.

Investors would rather look at other factors such as the size of the fund (asset-under-management) and the liquidity (trading volume and trading turnover). Larger sizes and greater liquidities mean that there are more commodities and transactions in the market so that the theory of big numbers applies to produce a reasonably fair price at which investors can comfortably do business. To be able to buy or sell at this market-derived ‘fair price’ means much more than a few percentage points off the management fee to the investors.

On the other hand, iShares FTSE A50 China Index ETF and CSOP FTSE China A50 EFT (2823.HK and 2822.HK) are very popular. Indeed, they are two of the five most highly traded ETFs in the Hong Kong market. These five ETFs (including Tracker Fund of Hong Kong) represent 95% of the total trading volume of over 170 ETFs in Hong Kong. The average trading volumes and average daily turnovers of 2823.HK and 2822.HK far overdid their neighbours in the table. Therefore, investors in them can be more assured that the buying or selling prices are not too far from the fair market prices and so are willing to pay higher management fees for such liquidity privileges.

The A50 China Tracker Fund of The Chinese University of Hong Kong Staff Superannuation Scheme (1995), currently of a size of HKD170 million, is currently invested solely in CSOP FTSE China A50 ETF (2822.HK). The fund size and the liquidity of the latter (2822.HK) have enabled members of the University’s staff superannuation scheme to enjoy reasonable benefits and privileges.

Stock Code	2823.HK	2822.HK	2832.HK	2843.HK
Name	iShares FTSE A50 China Index ETF	CSOP FTSE China A50 ETF	Bosera FTSE China A50 Index ETF	Amundi FTSE China A50 Index ETF
Fund size	HKD28.4 b (31.1.2017)	RMB18.5 b (28.2.2017)	~HKD17.8 m (31.1.2017)	RMB259 m (31.1.2017)
Management fee as a percentage of asset-under-management	0.99% p.a.	0.99% p.a.	0.99% p.a.	0.48% p.a.
Average daily trading volume from 11.2016 to 2.2017	36.2 m units	40.2 m units	0.001 m units	0.09 m units
Average daily turnover from 11.2016 to 2.2017	HKD404.5 m	HKD467.3 m	HKD0.007 m	HKD1.08 m