The investment objective of the Sub-Fund is to provide investment results that, before fees and expenses, closely correspond to the performance of the S&P High Yield Asia Pacific-Ex New Zealand REITs Select Index (the “Index”).
1. General investment risk
- The Sub-Fund’s investment portfolio may fall in value due to any of the key risk factors below and therefore your investment in the Sub-Fund may suffer losses. There is no guarantee of the repayment of principal.
2. Currency risk
- Underlying investments of the Sub-Fund may be denominated in currencies other than the base currency of the Sub-Fund. The Net Asset Value of the Sub-Fund may be affected unfavorably by fluctuations in the exchange rates between these currencies and the base currency and by changes in exchange rate controls.
3. Asia Pacific market real estate sector concentration risks
- The Sub-Fund’s investments are concentrated in the real estate sector in a single geographical region (the Asia Pacific region). The value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.
- The value of the Sub-Fund may be more susceptible to adverse economic, political, policy, foreign exchange, liquidity, tax, legal or regulatory event affecting the designated markets in the Asia Pacific region (Singapore, Hong Kong, Australia, Japan and South Korea).
4. Risk associated with investments in REITs
- General: The Sub-Fund invests in REITs, which expose investors to the risks of owning real estate directly, as well as to risks that relate specifically to the way in which REITs are organised and operated.
- Real estate sector risk: The investment portfolio of a REIT will be affected by changes in the values of the underlying properties that they own or operate and will likely be impacted by the performance of the real estate market. The value of REITs, and consequently the performance of the Sub-Fund, may be affected by various factors, including but not limited to the following: (i) changes in general economic and market conditions; (ii) changes in the value of real estate properties; (iii) risks related to local economic conditions, overbuilding and increased competition; (iv) increases in property taxes and operating expenses; (v) changes in zoning laws; (vi) variations in rental income, neighbourhood values or the appeal of property to tenants; (vii) the availability of financing; (viii) changes in interest rates and leverage; (ix) specialised management skills and (x) losses from casualty or condemnation.
- Operation and management risk: The performance and value of REITs are dependent upon specialised management skills and their investments may be concentrated in a few properties in a geographic area or a property type. REITs are also subject to heavy cash flow dependency and are particularly reliant on the proper functioning of capital markets. In the event of a default by a lessee, the REIT may experience delays in enforcing its rights and may incur substantial costs in protecting its investments. In addition, to the extent a REIT has its own expenses, the Sub-Fund will bear its proportionate share of such expenses. Any dividend policy or dividend payout at the Sub-Fund level may not be representative of that of the relevant underlying REIT.
- Interest rate risk: Fluctuations in interest rates may increase the interest costs incurred by a REIT in respect of its borrowings and may have an adverse effect on the level of activity in the property market. The financial position of the REIT and its ability to make distributions may be adversely affected. Changes in interest rates may also have an impact on the trading price of the units of a REIT.
- Liquidity risk: The less liquid nature of REITs (compared to other stocks) may affect the Sub-Fund’s ability to acquire or dispose of such assets at the price and time it wishes to do so, which may have an adverse impact on the performance of the Sub-Fund.
- Regulatory risk: Real estate income and values may be adversely affected by applicable domestic and foreign laws (including tax laws), as well as government actions. A REIT could also fail to qualify for favourable regulatory treatment.
- Leveraged risk: A REIT may use leverage, which increases investment risk and the risks associated with debt financing and could adversely affect a REIT’s operations and market value in periods of rising interest rates. Financial covenants related to a REIT’s leveraging may affect the ability of the REIT to operate effectively. In the event that a REIT is wound up, its assets will be used to pay off creditors first and holders will only receive distributions from any remaining assets.
5. Asia Pacific markets risks
- Some Asia Pacific exchanges on which the Sub-Fund will invest may have the right to suspend or limit trading in any security traded on the relevant exchange. The government or the regulators may also implement policies that may affect the financial markets.
- Some Asia Pacific countries in which the Sub-Fund will invest may restrict foreign investment or the repatriation of income, capital or the proceeds from sale of Securities, or may intervene with foreign exchange rates. The Sub-Fund may incur higher costs investing in these countries. These restrictions may limit the Sub-Fund’s ability to invest in these countries, delay the investment or repatriation of capital of the Sub-Fund and impact the Sub-Fund’s ability to track the performance of the Index.
6. New index risk
- The Index is a new index having only been launched on 27 April 2020. As such, the Sub-Fund may be riskier than other ETFs tracking more established indices with a longer operating history.
7. Multi counter risks
- If there is a suspension of the inter-counter transfer of Units between the counters and/or any limitation on the level of services by brokers and CCASS participants, Unitholders will only be able to trade their Units in one counter only, which may inhibit or delay an investor dealing. The market price of Units traded in each counter may deviate significantly.
- As such, investors may pay more or receive less when buying or selling the Units traded in HKD on the SEHK than in respect of the Units traded in USD and vice versa.
8. Other currency distributions risk
- Investors should note that all Units will receive distributions in the base currency (USD) only. In the event that the relevant Unitholder has no USD account, the Unitholder may have to bear the fees and charges associated with the conversion of such distribution from USD to HKD or any other currency. The Unitholder may also have to bear bank or financial institution fees and charges associated with the handling of the distribution payment. Unitholders are advised to check with their brokers regarding arrangements for distributions.
9. Distributions out of or effectively out of capital risks
- Payment of dividends out of capital or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment. Any such distributions may result in an immediate reduction in the Net Asset Value per Unit of the Sub-Fund.
10. Passive investments risk
- The Sub-Fund is not “actively managed” under normal market conditions, and therefore the Manager will not adopt any temporary defensive position when the Index moves in an unfavourable direction. When there is a decline in the Index, the Sub-Fund will also decrease in value and investors may lose a significant part of their respective investments. Under exceptional market conditions and/or extreme circumstances, the Manager may adopt a temporary defensive position for protection of the Sub-Fund in the best interests of the Sub-Fund and the Unitholders.
11. Tracking error risk
- The Sub-Fund may be subject to tracking error risk, which is the risk that its performance may not track that of the Index exactly. This tracking error may result from the investment strategy used and/or fees and expenses. The Manager will monitor and seek to manage such risk and minimise tracking error. There can be no assurance of exact or identical replication at any time of the performance of the Index.
12. Trading risks
- The trading price of Units on the SEHK is driven by market factors such as the demand and supply of U Therefore, the Units may trade at a substantial premium or discount to the Sub-Fund’s Net Asset Value.
- As investors will pay certain charges (e.g. trading fees and brokerage fees) to buy or sell Units on the SEHK, investors may pay more than the Net Asset Value per Unit when buying Units on the SEHK, and may receive less than the Net Asset Value per Unit when selling Units on the SEHK.
13. Trading differences risks
- As the markets in which the Sub-Fund invests may be open when Units are not priced, the value of the securities in the Sub-Fund’s portfolio may change on days when investors will not be able to purchase or sell the Sub-Fund’s Units.
- Differences in trading hours between the markets in which the Sub-Fund invests and the SEHK may also increase the level of premium or discount of the Unit price to Sub-Fund’s Net Asset Value.
- Securities listed on certain stock exchanges are subject to trading bands which restrict increase and decrease in the trading price, while Units listed on the SEHK are not. This difference may also increase the level of premium or discount of the Unit price to Sub-Fund’s Net Asset Value.
14. Termination risks
- The Sub-Fund may be terminated early under certain circumstances, for example, where the Index is no longer available for benchmarking or if the size of the Sub-Fund falls below USD5 million. Investors may not be able to recover their investments and suffer a loss when the Sub-Fund is terminated.
15. Reliance on market maker and liquidity risks
- Although the Manager will use its best endeavours to put in place arrangements so that at least one Market Maker will maintain a market for the Units traded in each counter (which may be the same market maker), and that at least one Market Maker for each counter (which may be the same market maker) gives not less than 3 months’ notice prior to terminating market making arrangement under the relevant market maker agreement, liquidity in the market for Units may be adversely affected if there is no or only one Market Maker for the HKD or USD traded Units. There is also no guarantee that any market making activity will be effective.