Wednesday, September 12, 2012

Tracker Fund (TraHK Stock Code: ETF Analysis

If you have a bit knowledge about ETF (Exchange-Traded Fund) history in Hong Kong, you shouldhave heard about Tracker Fund Hong Kong (TraHK Stock Code: which is the first ETF in H.K.

Tracker Fund Hong Kong (TraHK) was launched to dispose substantial H.K. blue clips held by the Hong Kong SAR (Special Administrative Region) government since its market intervention against Asia Financial Crisis and the well-known USD/HKD Peg System Attack in 1998.

Tracker Fund Hong Kong (TraHK)

Tracker Fund Hong Kong (TraHK) was born in 1999

Source: Tracker Fund Hong Kong (TraHK Stock Code:

This was exactly why the first ETF in Hong Kong was born. TraHK has been listed in Stock Exchange of Hong Kong (SEHK Stock Code: since November 1999 and now becomes one of the most popular ETFs in Hong Kong. Trustee and Custodian of TraHK is the State Street Bank & Trust Company (SSBT), while Fund Manager is the State Street Global Advisors (SSgA) Asia Ltd.

Now let us show you executive summary of our TraHK analysis report:

(1) The underlying assets of TraHK are the Hang Seng Index (HSI) constituent stocks determined by the HSI Services Co. Ltd, so that they are supposed to be the largest HK listed blue clips companies by free-float weighting-adjusted market capitalization. Therefore its strategy is simply to to track passively and replicate closely the performance of the benchmark Hang Seng Index (HSI) in terms of price and yield.

Now here is TraHK's top 10 holdings (as of December 31, 2011):

Company Name% Total Assets (NAV)SectorStock Code(s)
HSBC Holdings PLC14.88%Finance005.HK; HSBA; HBC
China Mobile Ltd.8.3%Commerce & Industry941.HK
China Construction Bank (CCB)7.06%Finance939.HK for H-shares; 601939.SS for A-shares
Industrial & Commercial Bank of China (ICBC)5.46%Finance1398.HK for H-shares; 601398.SS for A-shares
CNOOC Ltd.4.41%Commerce & Industry883.HK
PetroChina Co. Ltd.3.71%Commerce & Industry857.HK
AIA Insurance Group Ltd.3.709%Finance1299.HK
Bank of China (BoC)3.69%Finance3988.HK for H-shares; 601988.SS for A-shares
Tencent Holdings Ltd.3.12%Commerce & Industry700.HK
China Life Insurance Co. Ltd. (CLI)2.59%Finance2628.HK for H-shares; 601628.SS for A-shares

Table for TraHK: Top 10 Holdings

Source: Tracker Fund Hong Kong (TraHK Stock Code:

These top 10 holdings already contributed 56.93% of total assets (NAV) for this ETF. Here you can see there are 60% of top 10 holdings comes from financial sector. Surprisingly, none of the top 10 comes from the booming real estate sector in Hong Kong. Largest players in local property market such as Sun Hung Kai Properties Ltd. (SHK Stock Code: 016.HK) or Cheung Kong (Holdings) Ltd. (CKH Stock Code: 001.HK) are all out of the top 10 list. This clearly tells you that this ETF cannot truly reflect the economic development in Hong Kong, but should reflect development wider in the region covering Chinese or even Asian emerging markets. If you are bullish and long-term supporter of Chinese emerging markets, this ETF is the right choice for your investment needs.

Underlying index of TraHK is the 'Hang Seng Index' (HSI) published by HSDSL (Hang Seng Data Services Ltd.) and base currency of this fund is HKD (Hong Kong Dollars). While its benchmark Hang Seng Index (HSI) closed at 18434 and fell by -19.97% (was +5.32% YoY in 2010) in 2011, NAV per unit of TraHK fell only by -19.88% (was +5.31% YoY in 2010) to HKD$18.58. By the end of 2011, total NAV (Net Asset Value) of this passive fund was HKD$48.36 billions.

The following is the comparative performance of TraHK relative to Hang Seng Index (HSI) quoted in HKD (Hong Kong Dollars):

2800 Tracker Fund Hong Kong TraHK stock price chart

Current Tracker Fund Hong Kong (TraHK Share Price vs. Hang Seng Index (HSI) Chart

(2) TraHK is an opened-end and passive ETF, with ongoing fee structure as follow:

Nature of Fee(s)Fee Rates per annum/month (% of NAV)
Management Fee0.05% - 0.15% per annum of NAV. The larger amount of NAV, the higher % fee.
Trustee Fee0.05% - 0.15% per annum of NAV (same rates as Management Fee).
Misc. Operation FeesVaries.
Registrar FeeHKD$10K - HKD$1 million per month. The larger number of unitholders, the higher amount of fee.
Conversion Agency FeeHKD$16K per month.
TER (Total Expense Ratio)Up to 0.15% (estimated by Fund Manager) per annum of NAV.

Table for TraHK: Ongoing Fee Structure

IPO Prospectus Source: Tracker Fund Hong Kong (TraHK Stock Code:

(3) TraHK Dividend Policy: TraHK pays and distributes dividends semi-annually to shareholders (usually May and November for every year) based on the dividends paid by its holdings, i.e., the Hang Seng Index (HSI) constituent stocks. Please be aware that HKD$80 per year (maximum) will be deducted from distributions if unitholders register their fund holdings under their own name.

(4) The same as the other open-ended ETF, TraHK is also subject to passive investment risks (considering the passive index-tracking nature of this fund) or tracking error risks (considering liquidity of the market may varies). In addition, it has a special licensing risk as it relies on the use of Hang Seng Index (HSI) licence agreement granted by HSDSL (Hang Seng Data Services Ltd.) which is subsequently owned by Hang Seng Bank Ltd. (Stock Code:, a HSBC Group (Stock Code: member.

Conclusion of TraHK Stock Analysis:

With reference to the above mentioned factors as well as our calculated target of Hang Seng Index (Source: our current 2012 Hang Seng Index target is 19481, we estimate that the Net Asset Value (NAV) per unit of TraHK shall be HKD$ 20.03 (target fair value) in 2012. As TraHK usually trades at a premium (instead of a discount) to the Net Asset Value (NAV) per unit and the average 52-week premium is now 0.075%, we estimate that the share price of TraHK shall be HKD$ 20.03 x (1 + 0.075%) = HKD$ 20.05 (target fair value) in 2012. With this fair value at HKD$ 20.05, we hereby rate the present TraHK share price level of HKD$ 20.50 (by September 7, 2012) as 'reasonable' (Source: Our Own Rating Specifications). We suggest a buy if its share price drops down to HKD$ 17.02 (our cheap rating), and on the other hand we suggest a sell if it climbs up to HKD$ 23.10 (our expensive rating).

Although there are still a few major competitors of TraHK such as the opened-end Hang Seng Index Fund (Stock Code: etc, Tracker Fund Hong Kong (TraHK Stock Code: now remains the most liquid Hang Seng Index-tracking fund in the market. Due to this particular reason, investors who are able to closely monitor the changes in trading volume of this ETF or its short-sell ratio will find the data extremely useful in analyzing the whole market situation or even in predicting the next market trend. This ETF is indeed a good market indicator for regional investors. Even though you may not physically invest in it, you can still use it to build up your own market sense for other investment needs.

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