How You Can Invest In Technology Stocks Through The Lion-OCBC Securities Hang Seng TECH ETF
20 years ago, the most valuable companies on the planet were General Electric, Exxon Mobile and Walmart. Today, the six most valuable companies in the world are Apple, Microsoft, Amazon, Alphabet (Google), Alibaba and Facebook – all technology companies.
Over yesteryear two decades, technology has revolutionised our world, from the way we work (laptops), order products we need (e-commerce), search for information (search engine) and interact and build relationships with one another (social media).
Typically, most of these technology companies are based in the United States. For example, the five biggest components of the S&P 500 today are Apple, Microsoft, Amazon, Facebook and Alphabet. Other companies that have done well over recent times include Netflix Salesforce, Adobe and Tesla. These are all companies listed on U.S. stock markets.
Besides the United States, the other geographical hotspot for major technology companies is China. As China's economy continues growing rapidly, technology companies helping to fuel this growth will likely continue to do well. These include the kind of Alibaba, Tencent and Xiaomi to name a few. These are companies you are able to invest in via the Hong Kong Stock Exchange (HKEX).
How Technology Companies Have Performed In 2021 On The HKEX
Similar to their U.S. counterparts, Chinese technology companies on the HKEX have done well in 2021. The idea Seng TECH Index, which represents the 30 largest technology companies listed on the HKEX – and which was launched on 27 July 2021, has grown by about 18% since its launch, from 6,774.78 on 27 July 2021 to 7,997.52 as of 20 November 2021.
(Note: Index was launched on 27 July 2021. Information before the launch of the index is back-tested according to historical performance)
This compares favourably towards the S&P 500, which has increased by about 9.8% throughout the same period, and also the Hang Seng Index itself, that is up about 7.5% throughout the period. This highlights the functional difference in performance between tech and non-tech companies in 2021.
Investing In Technology Companies Listed On The HKEX
As an investor, we can invest directly in any of the technology companies that are part of the idea Seng TECH Index. These include the kind of Alibaba, Tencent, Meituan, Xiaomi and Lenovo.
However, as experienced investors know, choosing specific stocks to invest in comes with its own unique risk. The primary risk is that individual stocks may underperform, even if the entire sector is doing well.
For example, should you have had invested in Lenovo Group at the start of the entire year, you would have paid HK$5.37 in line with the share price on 2 Jan 2021. By 13 Nov 2021, the share cost of the company is at HK$5.09 meaning you would have made a loss. However, should you invested in Xiaomi Corp instead, you would have paid HK$11.22 on 2 Jan 2021. As of 13 Nov 2021, share price of Xiaomi Corp is HK$24.25, up about 216%.
The point we are trying to raise here is not that Xiaomi is a better company compared to Lenovo (though investors would likely argue so based on the share prices in the last year). Rather, we want to point out that investing in individual technology companies based on the general assumption that tech companies will do well can be risky. Unless you have a specific investment hypothesis that certain technology company will do much better than others, it might be better to hold on to a diversified portfolio of major technology companies.
Investing In Technology Companies Via ETFs
Building a diversified portfolio on your own can be tedious and expensive. Needing to buy ten or more technology stocks and needing to monitor and rebalance your portfolio continuously could be unrealistic for many retail investors.
Besides purchasing technology companies via a unit trust (i.e. mutual fund), one other method to gain access to a diversified portfolio of technology companies would be to invest via an ETF. Doing this allows us to have a hands-off approach to purchasing these technology companies since the fund managers will also be rebalancing the portfolio periodically.
The CSOP HST INDEX ETF is definitely an ETF listed on the HKEX that tracks closely the performance from the Hang Seng TECH Index. However, for Singapore investors, this means facing foreign currency risk because the ETF is traded in HK Dollar. The total expense ratio for the ETF is 1.05% per annum (p.a.).
Lion-OCBC Securities Hang Seng TECH ETF Can Provide Investors With Exposure To Technology Companies Listed On HKEX
The good news for Singapore investors is that there will be a new ETF – the Lion-OCBC Securities Hang Seng TECH ETF (Stock code: HST/HSS) – that'll be listed on the Singapore Exchange (SGX) from 10 December 2021 onwards.
Jointly launched by Lion Global and OCBC Securities (both of which are part of the OCBC Group), this is the first ETF established locally on SGX that invests in technology companies. By investing in this ETF, investors will be investing in a portfolio of the largest 30 technology stocks listed in Hong Kong via the SGX.
One significant advantage for Singapore investors is that the ETF can be traded in both Singapore Dollar and US Dollar. This allows investors to decide which currency they would like to invest in and manage their own foreign currency exchange risk accordingly.
In addition, with a total expense ratio of just 0.68% p.a., investors will love a cheaper expense ratio compared other similar ETFs.
Other advantages of the Lion-OCBC Securities Hang Seng TECH ETF (Lion-OSPL HSTECH) include the following.
- The ETF is classified being an Excluded Investment Product (EIP). Which means that you can simply trade it straightaway without needing a Customer Account Review (CAR) certification, which many other foreign ETFs may require.
- Trading board lot size of 10 units. This makes the minimum investment a lot lower.
- Since ETFs traded on SGX can be kept in your CDP account, no custodian account and costs are required compared to buying ETFs on foreign exchanges.
Initial Offering Period (IOP) For Lion-OCBC Securities Hang Seng TECH ETF
The Lion-OCBC Securities Hang Seng TECH ETF (Lion-OSPL HSTECH) will be listed on 10 December 2021 (Stock code: HST SGD /HSS USD). This is when investors can start trading the ETF on the SGX on their own.
However, if you are keen to invest in the ETF before it's listed on the SGX, you can participate in the Initial Offering Period (IOP). This is a period when the participating dealers including OCBC Securities, UOB Kay Hian, Philip Securities and iFast Financial will collect buy orders first from investors who wish to invest in the ETF of all time officially listed on the exchange. Unlike the first public offering (IPO) of stocks, investors who invest throughout the IOP will get full allotment from the ETF units they subscribe for.
The IOP for the Lion-OCBC Securities Hang Seng TECH ETF will take place from 23 November 2021 to 7 December 2021. For those who wish to subscribe to the ETF throughout the IOP, you can reach out to your trading representative to place orders. You will need to place at least 5,000 units in one order if you subscribe through OCBC Securities. The good news is that there is a promotion where you can enjoy a $0 commission from 23 November 2021 to three December 2021.
To find out more about the Lion-OCBC Securities Hang Seng TECH ETF, you can read up on more details here.
Here’s a fast infographic about the Lion-OCBC Securities Hang Seng TECH ETF:
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