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Lion-OCBC Tech ETF: What is it and How to invest in it?

December 8, 2020

Quick Summary

Who?	Lion-OCBC Tech ETF tracks the Hang Seng TECH ETF (3032.HK), giving exposure to the Mainland Chinese Technology Industry
What?	Top holdings in the ETF includes: Alibaba, Tencent, Meituan, AliHealth, JD, Xiaomi & Lenovo etc
When?	IPO process has started, due to be open for trading on SGX on 10 Dec 2020
Why?	Strong belief and confidence in China & Technology But do not want currency exposure to HKD
Where?	Available on the Singapore Stock Exchange, with SGD and USD options
How?	Trade the ETF via your trading platform after 10 Dec 2020

2020 has been a challenging year with negative news from every angle, yet the silver lining to 2020 has been the rapid rise and growth of the technology industry. This is good news for technology investors as traditional tech stocks like Facebook, Amazon, Apple and Google reached new heights.

Another huge key market which has been growing strong over the past few years is the Chinese market, where new innovations and an increasingly affluent middle class have propelled Chinese GDP growth to new heights every year.

When you put these two trends together, you get an amazing investment opportunity if you can get exposure to the Mainland Chinese Technology Industry. Good news! There is now a one stop shop for you to access the Mainland Chinese Technology Industry via the Lion-OCBC Tech ETF!

What is it?

In July 2020, the Hang Seng TECH Index was launched in Hong Kong. It tracks 30 of the largest HKEX-listed technology companies. Key companies include Alibaba, Tencent, Meituan, AliHealth, JD, Xiaomi & Lenovo amongst others.

For Singaporeans who want to invest in the Hang Seng TECH Index, they expose themselves to potential HKD currency risks. There are also additional commissions and clearing fees for overseas securities depending on the brokerage you use.

The Lion-OCBC Tech ETF seeks to avoid all these problems by creating an ETF which tracks the Hang Seng TECH ETF but list it on the SGX in both SGD and USD currencies.

Click to enlarge | Extracted from Lion-OCBC Tech ETF brochure

Who should get it and Why?

Singapore investors who believe in

a) the technology industry,
b) the Chinese growth story;

BUT

c) do not want exposure to HKD currency fluctuations or
d) do not have access to foreign stock markets.

Investing in a passive ETF has numerous advantages for the everyday investors. It is typically at a much lower cost as compared to mutual funds. ETFs also provide diversification across multiple companies so you are insulated if one company enters into turmoil, the ETF also routinely rotate underperforming companies out of the basket and replace them with better quality companies. ETFs are also highly liquid with a lower barrier to entry, for example the minimum entry price gain exposure to the Lion-OCBC Tech ETF should be below $20.

All the benefits of a traditional ETF coupled with the booming tech industry and the increasingly affluent Chinese market make the Lion-OCBC Tech ETF an attractive product for the hands off everyday investor who would like to have exposure into the Chinese tech scene.

The Lion-OCBC Tech ETF caps each stock weightage to 8% of the entire fund and rebalances the basket every quarter. It caps the expense ratio to 0.68% for the first 2 years from the inception of the ETF.

When and How?

The Lion-OCBC Tech ETF IPO runs from 23 November 2020 to 7 December 2020. It is scheduled to be listed on the SGX on 10 December 2020, where open trading commences thereafter.

If you are keen to invest in this ETF after it is listed on the SGX, simply log in to your regular trading platform and search for “Lion-OCBC Sec HSTECH S$”, the current proposed stock code is HST. The shares will be deposited into your CDP account if the transaction is successful

You might encounter a highly similar product called “Lion-OCBC Sec HSTECH US$” with a stock code of HSS. This is the same product, but it clears and settles in USD. You can essentially buy in SGD and sell in USD or vice versa.

ProTip: If you have read our previous SRS article and contributed to your SRS account, the Lion-OCBC Tech ETF is SRS eligible. You can use your SRS account to invest in the Lion-OCBC Tech ETF for the long run!

Concluding thoughts: to buy or not to buy, that’s the question?

The Lion-OCBC Tech ETF is a welcomed addition to the local market, providing local investors the exciting opportunity to gain exposure to the Chinese technology market. There are alternative similar products in the Hong Kong market with a lower expense ratio, but those products come with HKD currency risks.

Given how Lion-OCBC Tech ETF is listed on the SGX, it is subjected to the local licensing requirements from SGX and MAS. Investors can easily inquire or report any issues which they have with the regulators. The Lion-OCBC Tech ETF also comes with a smaller lot size of (10 lots minimum) as opposed to the Hong Kong equivalent of (100 lots minimum). It also reduces the currency risk by clearing in SGD and USD as opposed to HKD only and you can invest using your SRS account.

The flexibility which the Lion-OCBC Tech ETF provides comes at a cost of a slightly higher expense ratio. My personal opinion is that this is a worthwhile trade off and it significantly reduces the barriers to entry for investors to gain exposure to the Chinese technology market. If you are confident of the Chinese technology market, this would be a good product to add to your portfolio!