It's free! Take one now! Lessons for the funds industry


Stewart Aldcroft


ETFs, Mutual funds

I’m sure that many readers in Hong Kong have become overly-familiar with the mass distribution of newspapers every morning. As I take my morning constitutional from the ferry piers via IFC, and cross through the Hang Seng Bank Building on the eastern walkway, I am often accosted by multiple newspaper vendors anxious for me and others walking by to take away their free newspaper. Occasionally they are also joined by other vendors giving away their tins or packets of coffee or other goodies.

Originally, when the free newspaper business started, it was just given out on the MTR. Then a few years later some new papers, such as: Headline Daily, AM 7.30, The Epoch Times, were started by both existing newspaper proprietors and some who were new to the newspaper game. They adopted the more aggressive tactic by having their vendors standing at major pedestrian junctions mainly in Central, Admiralty and Causeway Bay in Hong Kong.

The numbers of papers rose, as the public welcomed them as a quick easy read. Total distribution numbers of these papers rose rapidly also, exceeding even the mass market dailies of the established papers. The Hong Kong Standard, previously a paid-for publication, joined in, changed its name, became tabloid and a give-away. In the last few weeks, there have even been some more serious papers join the fray such as The Asian Wall Street Journal, and China Daily.

Clearly, in a town which has often been cited as having the highest number of daily newspapers by proportion to its population, the free newspaper has been a roaring success. Advertisers loved them, as they were getting in front of even more potential buyers of their products. It has been a self-financing boom. But all the while, the existing papers also seemed to flourish. Circulation numbers, even of the tabloids, hardly changed.

So why should those of us in the financial markets be interested?

Quite simply, what the dramatic changes in the newspaper industry have demonstrated are that where there is a free-of-charge option to the choices available, far from decimating or cannibalising the existing market, there is a new market created. This is true also for the exchange traded funds (ETF) market as it seeks to join mutual funds as part of the investment solutions offered in the market.

As has been demonstrated by the enormous success of ETFs in North America, they are not a threat to the established fund industry, but an enhancement to it. Investors can get access to stock markets in bite-sized proportions, in ways that suit their needs and lifestyle.

Interestingly, it has been observed that in many instances it is the younger, more adventurous investor that is buying ETFs, and often through online brokers. They like what they see, they act immediately and have full control on their investments.

This doesn’t sit too well with the more established views of how the market for investment products operates, can be controlled and regulated. But it is the future. The investment advice business constantly needs to “up its game” if it is to succeed in these modern times.

Investment is not just a long-term business, it also serves medium and short-term needs. It has to be flexible, changeable and transparent.

It is nearly 100 years ago that the first mutual fund was started, and nearly 20 years ago, when the first ETF was started. The two products can sit comfortably alongside each other within clients’ portfolios.

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