Exchange Trade Funds (ETFs) have become a low cost alternative of mutual funds for being more liquid and transparent. In 2020, there were more than 7,000 ETF products in the global market, with assets amounted to approximately 7.74 trillion U.S. dollars. Comparing with the amount of 1.3 trillion USD in 2010, this significant increase within a decade indicated the tremendous growth of this new form of index funds. While some criticises that traditional ETFs are too passive in reflecting market signals, research from Dr. Shiyang Huang, Associate Professor in Finance, HKU Business School and his team shows that Industry ETFs are able to hedge the industry and play a great role in improving market efficiency in the US market. The Industry ETF was proven as a positive financial innovation for both investors and the market and therefore should be encouraged by regulators.

Maintaining Market Efficiency with “Long-short Strategy”
The role of ETFs in risk hedging is common in the market. In 2017, Bloomberg reported that hedge funds had USD $103 billion in short ETF positions, almost doubling their USD $43 billion in long positions. While a high Short Interests Ratio (SIR) generally reflects a bearish sentiment in the market, Dr. Huang discovers that informed investors are actually adopting a “long-the-stock/short-the-ETF” strategy to profit from firm-specific information and to hedge industry risks.

Dr. Huang explains that even when investors acquire positive information of a stock prior to its earnings announcements, stock price itself is still vulnerable to exogenous risks such as industry risks and market risks. To hedge industry risks effectively, hedge funds will hold a long position on a stock they have positive firm-specific information on, while holding a short position on an Industry ETF (IETF) to which the stock belongs to. Dr. Huang and his team discover that the long-the-stock/short-the-ETF strategy can mitigate Post-Earnings-Announcement Drifts, reflecting that the market incorporates the information of the earning announcement efficiently, and guide the stock price to its true value in a timely manner. That said, introducing an IETF can help improve the efficiency of a company’ stock that belongs to the corresponding industry of this IETF.

Do Smart Beta ETFs Create Values to Investors?
In the ETF marketplace, smart beta ETFs supported by asset pricing research can be regarded as the fastest-growing segment. They were built upon formulaic rules, such as the value, growth rate, size and market momentum of a portfolio of stocks. As of 2018, Smart-Beta ETFs account for more than 20% of the US ETF market. As forecasted by Blackrock, Smart-Beta ETFs will grow to more than USD $2 trillion by 2025.

However, Dr. Huang discovered that although the newly introduced Smart-Beta ETFs have stellar backtests results, significant drop on the performance are always found after listing. After studying the performance of 238 Smart-Beta-ETFs listed in the US from 2000-2018, Dr. Huang has shown that the unsatisfactory performances of Smart-Beta-ETFs are unrelated to improved market efficiency, strategic listing timing and diminishing returns to scale. In contrast, the existence of data mining during index construction largely drives the performance decline of smart beta indexes. Data mining is particularly significant in multi-factor indexes where ETF sponsors have the discretion in freely choosing and combining multiple factors for their ETF products. Before listing, the proclaimed returns from multi-factor Smart-Beta ETFs are on average 4.11% per year. But after listing, they suffer an average loss of -0.79% per year.

Some argues that the poor performance of Smart-Beta ETFs is a result of high management fee, but even excluding this factor, research from Dr. Huang has shown that their performances are still weaker than traditional market index ETFs.

Despite the research showing a significant performance gap before and after listing, Dr. Huang points out that Smart-Beta ETFs could still out-perform traditional ETFs under some special circumstances. For example, in the current “zero interest rate” environment, Smart-Beta ETFs that follow high-yield can outperform the market index ETFs, as high-dividend stocks may perform well. Therefore, investors are advised not to blindly chase “on paper” performance of “smart” beta indexes, but have a more in-depth study before purchasing this new type of finance products.

Read More:
Innovation and Informed Trading: Evidence from Industry ETFs
The Smart Beta Mirage

Twelve HKU Business School students joined the Virtual Business Professional (VBP) Project in March. They were placed in teams of 5-6 people with around 100 students from 16 different universities worldwide to work on a consulting project for companies including Netflix, Starbucks and Google. Throughout the project, students learned many essential remote working skills, intercultural communication skills, different business models and marketing strategies, and how modern virtual collaboration can be powered by artificial intelligence technology. The VPB Project offered by the Marshall School of Business at the University of Southern California (USC) is a six-week project that offers students an opportunity to collaborate and work in a virtual setting with students from all over the world to develop virtual and cross-cultural collaboration skills using state-of-the-art collaboration tools.

	“I was fascinated to learn about various content, such as different social media strategies, crowdfunding, donor retention, content creation, bolted in reputation etc. Such knowledge would not be covered in the ordinary academic syllabus, yet crucial to internships and job seeking.”   Ho Yin Yee Jocelyn, BBA(Law)&LLB, Year 2
	“In terms of work processes, virtual collaboration is a whole lot harder than what I’ve expected – It is more than jumping freely into video conferences, utilising popular chat tools and learning how to store files on a shared cloud-based drive. Especially being the only Asian student in the team situated in an opposite time-zone, scheduling a meeting is considered as a big hassle. Even though I had to compromise for 7 am meetings, I have learnt to accommodate the majority’s needs for the team’s overall interest. More importantly, I have developed an adaptive work mode that would be beneficial to my future studies and career.”   Chu Tsoi Yan Jenny, BBA(IBGM), Year 2
	“Teammates from different backgrounds have different working styles and we can learn from the difference. For example, one of my teammates has a strong leadership capacity, and he works and aggressively leads us. Feeling inspired to work with him, I think some of his merits can be absorbed by myself.”   Gao Ningling, BEcon&Fin, Year 2

Learn more: https://www.marshall.usc.edu/departments/business-communication/vbp-project

Congratulations to Shivang Singh (BBA(IBGM), Year 4) who was a member of the winning team “Edilery” in the Hult Prize 2021 Challenge – Regional Final in Manila Impact Summit.

Proudly acclaimed as the “Nobel Prize for Students”, the Hult Prize is the world’s largest social entrepreneurship competition organised by the Hult International Business School and the Union Nations Foundation. The theme of 2021 was “Food for Good – transforming food into a vehicle for change”.

Student teams are required to solve a pressing social issue by developing a scalable and sustainable social enterprise. They were asked to pitch ideas on building food enterprises that will impact the lives of 10 million people by 2030 while strengthening communities, increasing incomes, feeding the hungry and creating jobs.

The team “Edilery” came up with an idea that aspired to drive sustainable impact in fighting climate change, malnutrition and gender inequality. With edible cutlery as the vehicle of change, they aimed to create livelihoods to support communities while eradicating plastic cutlery from the global food and beverage industry and promoting nutrition in regular dietary intake.

Winners of the Regional Finals will join the 2021 Hult Prize Accelerator Programme in the United Kingdom with training, coaching and networking opportunities. Selected teams from the Accelerator will pitch at the Hult Prize Annual Awards Ceremony and Gala to be hosted at United Nations Headquarters in New York in September 2021. One student team will be selected as Hult Prize Laureate and win US$1,000,000 to launch their enterprise.

Learn more: https://www.hultprize.org

Over the past semesters, students who are majoring in Asset Management and Private Banking (AMPB), formed into groups of 3-4 students, had the opportunities to have coffee chats with financial industry practitioners from companies like Fidelity International, Julius Baer, HSBC Global Private Banking, eFusion, Chartwell Capital, etc. The event was arranged by Prof. Anna Wong, Programme Director of Bachelor of Finance in Asset Management and Private Banking.

Under the informal setting, students learned more about the current trend of the industry and the personal story of the practitioners on how they developed their career. They also had the chance to visit practitioners’ office. The event was well-received, and our students have plenty of takeaways from the visits.

Lau Yuen Ying, Year 3, AMPB student believes this opportunity can help her gain a deeper understanding of the recent trends in the private banking industry, “I thought COVID-19 pandemic would negatively affect the industry, yet, it has fostered communication with the clients and increased the transaction volume tremendously. Each client’s reaction towards the pandemic situation might be different, so they have to cater to their needs in various ways.”

Lam Hei Tung, Year 1, AMPB student thinks that this is an eye-opening experience, “The most impressive sharing in the coffee chat is how we should better equip ourselves for our future. Mr John Lo, a private banker at Bank of China International Limited, gave us insights into how the industries look like, ranging from their operation, valued qualities to promotion opportunities. I learnt a lot from John and became more clear about what I should achieve during my college years.”

(Second left) Mr. Frederick Wong, CFA, Founder & Chief Investment Officer of eFusion

(First left) Mr. Evan Ng, Head of Trading and Senior Investment Analyst of Chartwell Capital

Cheung Pak Hin, a year 4 BEcon&Fin student wins in the “International Business Agility Labs: Supply Chain Management”, a virtual global case competition organised by the Robert H. Smith School of Business, University of Maryland during April 9 – 16, 2021. He and his team members from other universities worked together to solve a real-world business case for a Brazilian company.

 “By working with working with like-minded students across continents, I realised the abilities to embrace diversity of thoughts and to speak up proactively were of paramount importance to facilitate an effective collaboration with teammates from diverse background,” says Pak Hin.

The team consisted of five other business students from Mediterranean School of Business of South Mediterranean University, National University of Singapore, Vienna University of Economics and Business, and University of Maryland.

Learn more about the competition at https://go.umd.edu/AgilityLabs

Throughout this academic year, students who are majoring in Asset Management and Private Banking had the opportunity to participate in the monthly e-roundtable series meeting Senior Executives in Asset Management and Private Banking industry virtually, including Dr. King Au, Adjunct Professor at HKU Business School and Executive Director of Financial Services Development Council (FSDC), Mr. Ronald Chan, Founder and CIO of Chartwell Capital, Ms. Janet Li, Leader of Mercer Investment Advisory Asia, Mr. Ivan Wong, Managing Director and Co-head of North Asia, HSBC Private Banking, Ms. Ronie Mak, Managing Director of RS Group, and Ms. Amy Yip, member of Board of Directors of Deutsche Borse Group (the German Stock Exchange), EFG Bank, AIA Group and Prudential. This series was arranged by Prof. Anna Wong, Programme Director of Bachelor of Finance in Asset Management and Private Banking. 

In each e-roundtable, over 50 students joined, and one of them had been selected as the student moderator for the session. Students were well prepared, raised good questions and had conversations with the guest speakers on topics including the current challenges for HK in the finance market, what is value investing, the role of institutional portfolio advising, the current challenges for private banking, the growth of family offices and the importance of sustainable financing. Guest speakers also shared their career journey and tips on developing the talents most wanted by the industry. The whole series was well received, and our students have plenty of takeaways from each guest speaker.

(From left) Mr. Ivan Wong of HSBC Private Banking; Mr. Tony Au of HKU Business School

Mr. Ronald Chan of Chartwell Capital

HKU Business School Professor James K.S. Kung has recently won the Royal Economic Society Prize for the best article published in The Economic Journal in 2020. His paper, “Long Live Keju! The Persistent Effects of China’s Civil Examination System”, co-authored with Dr. Chicheng Ma and Dr. Ting Chen, examines the long-term consequences of China’s millennium-long civil examination system for human capital or educational outcomes.

“There is a growing literature in economics showing that both institutions and culture have had a long-term persistent effect on economic development. Countries with “bad” institutions during the colonial rule, e.g., institutions that fail to constrain the ruler, have demonstrably poorer economic performance in the long run. The same with culture,” Professor Kung explained why the team was dedicated to studying China’s past and its implication on China’s economic development.

Keju, a civil service examination system in Imperial China, became the world’s first meritocratic bureaucracy since the Song dynasty, lasting for nearly one millennium prior to its abolishment. While one would agree that “learning is more than just scoring”, zealous scholars back in the old days were motivated to take keju and determined to attain the highest possible qualification – the jinshi because of its exceptional prestige and rewards. Professor Kung and his team thus hypothesized that keju had likely created a distinct group of elites with deep respect for learning and academic achievements, so much so that over time it fostered a “cultural trait” that has persisted even long after the exam’s abolishment. “Keju provided us with an invaluable opportunity to study the possible persistence of institutions and culture combined in one single instance,” said Professor Kung.

“From our study, we found that an additional jinshi per 10,000 people has had the effect of increasing years of schooling by 0.87% in 2010, which is equivalent to nearly an additional year of schooling out of the mean of 8.72. Benchmarking this to a recent United Nations estimate, the magnitude is translated into an earnings difference of 1.5 times,” Professor Kung added.

By analysing historical data, their work shows that “how it was education rather than material wealth that is considered important to be passed on to the next generation in some cultures but not in others and to the extent that education matters for economic growth, it is the wealth of nations”.

Professor Kung joined HKU Business School in July 2018 as Professor of Economics. “I was attracted to the School because of the sincere invitation extended to me by our dean Professor Hongbin Cai to join what promised to be a thriving academic community. In addition to having a proven track record in leadership, Professor Cai is also an accomplished scholar; the combination of these qualities in academic leadership is very attractive. Moreover, there were also the opportunities to work with such fine colleagues as Professor Zhiwu Chen on developing a programme in China’s economic history. All of these made my decision an easy one,” said Professor Kung. In 2019, he was conferred the Sein and Isaac Souede Professorship in support of his academic and research activities in economic history of China.

Appointed as the new Head of Economics Academic Area in October 2020, Professor Kung will be making plans to modernise the School’s undergraduate curriculum with new courses to equip students with practical skills both in data analysis and substantive knowledge about the rapidly changing world. Similar efforts are also made to strengthen the PhD programme; new postgraduate research courses in applied economics such as “Economic History and Development”, “International Economics/Empirical Industrial Organization”, “Applied Econometrics”, “Macroeconomic Research related to China” will also be offered in 2021/22.

With digitalised data becoming more available and ever-growing computation power, his area is readily up for the challenge that big data brings for researchers in applied economics.  Professor Kung has already led the recruitment drive for a bigger and stronger army of top scholars from around the world whose expertise is to make intelligible and innovative use of data in addressing a wide range of issues.

Learn more about the Royal Economic Society Prize: https://www.res.org.uk/resources-page/2020-royal-economic-society-prize.html 

Winners of Royal Economic Society Prize 2020: Professor James K.S. Kung from HKU Business School (middle), Dr. Chicheng Ma from HKU Business School (right) and Dr. Ting Chen from Hong Kong Baptist University (left)

Congratulations to our UG business students who have won the “Best Pitch Deck Award”, Top 10 & Top 25 in the Amplify Trading Global Markets Competition 2021 | APAC.

Kim Nahee, BFin(AMPB), Year 4 and Song Yunju, BBA, Year 5 won the Best Pitch Deck Award. They constructed a buy-side pitch book that aimed to help a recently established asset management firm to raise funds from potential clients following the top-down investment strategy starting from global macroeconomics trends, growth potential and broad industry sectors, and based on concrete quantitative measures to make final investment decisions.

“We think the competition is an amazing opportunity for us to experience the role of portfolio managers, allocate assets based on the market movement, and present data throughout the different market situations. We were also able to experience the roles of both a market maker and hedge fund, which allowed us to gain a well-rounded understanding of the financial market mechanisms.”

On top of the “Best Pitch Deck Award”, Yunju was also awarded top 10, while Lo Chun Yu, BSc(QFin), Year 4 and Ng Lok Shan Brendan, BSc(QFin), Year 3 were awarded top 25 in the competition.

Chun Yu is grateful to have had the opportunity to participate in this fun-filled yet insightful experience. “It was a great way to take the initiative to conduct a detailed global macro analysis, form our own investment strategy, mitigate potential risks, and most importantly to learn how to tell a good story to our hypothetical investors.”

He also thinks the experience is remarkable and recommends those interested in financial markets to join this competition. “Not only did we learn to leverage our finance knowledge and market sense, but also, the thrills of seeing our investment decisions rewarded by the market were definitely something we could not have obtained in textbooks.”

Brendan shares that the competition allowed his team to work on the presentation crafting skills. He also learned the importance of taking quick, calculated decisions to generate profit as an OTC (Over-the-counter) market maker. “Specialising in certain markets or products when making markets made it easier to match buyers and sellers. Overall, I am grateful to have this opportunity to take part in the competition and I think it was worth the time.”

The competition aims to help university students from all disciplines to gain practical understanding in the world of finance, particularly in Asset Management, Sales & Trading, Wealth Management, Hedge Fund and Research through a series of lecture videos, pitch deck presentation and trading simulations.

In the Preliminary Round of the competition, 692 teams of students from the APAC region worked in groups of two to prepare buy-side pitch decks and participated in live asset management simulation online. 38 qualified teams entered the Grand Final Round on March 21, 2021. Members of the teams were required to compete on individual basis. 76 students participated in the trading simulation competition by making multi-asset investment strategies in both the roles of a Hedge Fund Manager and a market maker based on instantaneous news.

Learn more: https://www.amplifytrading.com/competition

Congratulations to Leung Wing Yin, BBA(Acc&Fin), Year 3, taking home the Second Prize in the EY’s Young Tax Professional of the Year 2021 (Local Competition). By bringing together students from all over the world, the competition aims to demonstrate how much the tax profession has changed today and how business is managed in different cultures. The competition also exposed participants to the skills required to be tomorrow’s leaders.

Wing Yin shares that “The truly fascinating part of taxation goes beyond numbers and figures. Along with the current dynamic business environment, international tax compliance modifies from time to time. The competition enabled me to gain insight into the ever-changing tax policies in different jurisdictions and how cross-border businesses manage tax risk. In the discussion of tax, there is no absolute answer, but logical thinking and critical mindsets could help us interpret and analyze new legislative and regulatory challenges in taxation. I was glad to have this opportunity to interact with seasoned tax professionals from different backgrounds at EY and collaborate with students from other universities. This valuable experience sparked my curiosity in tax and facilitated me to advance the knowledge of the international tax system, which had certainly given me exposure for my future career development.”

The first phase of the competition took place in Hong Kong. After an online test regarding technical knowledge and reasoning, shortlisted semi-finalists were invited to give a group presentation and the top eight candidates proceeded to the Hong Kong final competition on April 7, 2021. The finalists had 30-minute preparation time for an individual case presentation followed by a Q&A section with judges.

Hong Kong finalists will be invited to join Greater China final which will take place in Beijing in June (tentative). Country finalist will then be invited to participate in the International final which will take place in Europe.

Established in 2010, the EY’s Young Tax Professional of the Year is an international competition designed to identify young talent with an interest in tax, help them enhance their professional skills and develop their careers. The competition gives participants the opportunity to share experiences with people from a range of backgrounds and cultures, and exposes them to the skills required to be tomorrow’s tax leaders.

Learn more about the competition: https://www.ey.com/en_gl/careers/ey-young-tax-professional-of-the-year

The HKU-Accenture Business Consulting Programme aims to give students the exposure to business consulting, equip them with fundamental skills and methodologies for delivering values to big enterprises. Echoing the tagline “Inspire．Empower．Lead” of the HKU Business School, the Programme has INSPIRED and EMPOWERED students to LEAD their own way to success and make a difference in the world.

The Programme complements students’ regular classroom learnings with interactive classes, putting theory into practice through case study exercises. Students also benefit from the in-depth exchanges with industry professionals.

The Programme is ended with a case competition held on March 20, 2021. In response to the impact brought by the pandemic, students were expected to suggest recommendations to a business hard hit under such climate. Judges from Accenture and HKU Business School were impressed by students’ creativity and resourcefulness.

Mr. Ravi Chhabra, Managing Director, Financial Services Hong Kong Lead, Accenture (middle) presents the prize to the Champion team. (Students from left to right) Ng Jade Joyce, BBA(Law)&LLB year 3; Jiang Zhikun, BEcon&Fin, year 2; Leung Si Yiu, BBA(Acc&Fin), year 4 and Chen Minyang, BBA(Acc&Fin), year 3

Mr. Ravi Chhabra presents The Most Innovative and Most Profitable Concept Award to the students. (Students from left to right) Xu Yikang, BEcon, year 3; Sheung Chi Long, BBA(IBGM), year 2; Ryou Soo Min, BBA, year 2; Lam Yuk Lung, BBA(Law)&LLB, year 3 and Chan Lok Yu, BBA(Law)&LLB, year 3.

Ms. Christina Wong, Managing Director, Greater China Consulting Lead, Accenture (right) presents The Best Presenter award to Ryou Soo Min, BBA, year 2 (left).

Stepping into the fifth year, this collaboration continues to groom our young generation. This year, 39 students have completed the Programme with flying colours.