Presentation Highlights from Guest Speakers in Morningstar ETF Intelligence 2012 Hong Kong

This week we publish content highlights and presentation slides from our guest keynote speakers Marco Montanari, Head of Deutsche Bank ETFs and db-X funds, Asia Deutsche Bank Hong Kong and Chris Johnson, Director of Listed Derivatives Sales, Knight Capital Limited.

Marco Montanari noted that it is now the best time to invest in ETFs from a macro-economic perspective. Globally, stock-selection opportunity used to account for approximately 80% of the total opportunity set, but now it falls to around 40% while opportunity set explained by macro timing (e.g., country selection, industry rotation, and style timing) is close to all-time highs. In addition, Montanari shared the view of Deutsche Bank Research on key economic forecasts and did some comparisons between major indices tracking by ETFs with China exposure and looked into the differences between Deutsche Bank China A-Shares ETFs and RQFII ETFs.

Chris Johnson mainly talked about how to trade ETFs intelligently. His presentation showed the paths of execution, which included: (1) Risk trade; (2) Standard agency order types; (3) NAV-based trade; and (4) Hybrid (Combination of two or more of the above). When choosing a path, investors should consider the following aspects: (1) Investor objective for the trade; (2) Liquidity profile of the product; and (3) Broker capabilities. Moreover, Johnson said that investors should be aware of the hidden costs of a transaction. The transparent costs are the “tip of the iceberg”, but hidden below the visible surface are the larger and less transparent costs. The hidden transaction costs are mainly from: (1) Gap risk; (2) Impact cost; and (3) Opportunity cost. The liquidity of an ETF can greatly influence transaction costs, so it is important to assess an ETF’s liquidity.