The investment objective of the Sub-Fund is to provide investment results that, before fees and expenses, closely correspond to the performance of the CSI Global China Internet Index (the “Index”).
What is this Product?
Samsung CSI China Dragon Internet ETF (the “Sub-Fund”) is a sub-fund of Samsung ETFs Trust II, which is an umbrella unit trust established under Hong Kong law. The units of the Sub-Fund (“Units”) are listed on The Stock Exchange of Hong Kong Limited (the “SEHK”). These Units are traded on the SEHK like listed stocks. The Sub-Fund is a passively managed index tracking exchange traded fund under Chapter 8.6 and Appendix I of the Code on Unit Trusts and Mutual Funds (the “Code”). The Sub-Fund is a physical ETF which invests directly in the constituent securities of the Index (as defined below).
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. Equity market risk
- The Sub-Fund’s investment in equity securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.
4. Internet and technology sector concentration risks
- The Sub-Fund’s investments are concentrated in the internet and technology sector, in PRC based companies. The value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.
- Companies in the software, internet and related services industries are often smaller and newer, and are characterized by relatively higher volatility in price performance when compared to other economic sectors. Rapid changes in the market and intense competition in the internet and technology sector which may have an adverse effect on profit margins, causing investments in such companies to be more volatile. Moreover, the internet business is subject to complex laws and regulations which may be costly to comply with. There may also be substantial government intervention, such as restrictions on investments in internet companies or access to internet products and services. All of these may adversely affect the profitability of the companies in the sector in which the Sub-Fund invests and the value of the Sub-Fund’s investments.
5. PRC market risks
- The Sub-Fund’s investments are concentrated in the PRC. 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 PRC market.
- The A-Share market in the PRC is highly volatile and may be subject to potential settlement difficulties. Prices of A-Shares may rise and fall significantly and may fluctuate to a greater degree than more developed markets. Such volatility may result in suspension of A-Shares or imposition of other measures by the PRC authorities affecting the dealing/trading of Units and adversely affecting the value of the Sub-Fund.
- Securities exchanges in the PRC typically have the right to suspend or limit trading in any security traded on the relevant exchange. The PRC government or the regulators may also implement policies that may affect the financial markets. All these may have a negative impact on the Sub-Fund.
6. 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.
7. 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.
8. Stock Connect associated risk
- The relevant rules and regulations on Stock Connect are subject to change which may have potential retrospective effect. Stock Connect is subject to quota limitations. Where a suspension in the trading through Stock Connect is effected, the Sub-Fund’s ability to invest in A-Shares or access the PRC market through the programme will be adversely affected. In such event, the Sub-Fund’s ability to achieve its investment objective could be negatively affected.
9. RMB currency and conversion risks
- RMB is currently not freely convertible and is subject to exchange controls and restrictions. Although offshore RMB (CNH) and onshore RMB (CNY) are the same currency, they trade at different rates. Any divergence between CNH and CNY may adversely impact investors.
- Any depreciation of RMB could adversely affect the value of any investor’s investment in the Sub-Fund. Investors are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the Sub-Fund base currency (HKD) will not depreciate.
10. Securities lending transactions risks
- The borrower may fail to return the securities in a timely manner or at all. The Sub-Fund may as a result suffer from a loss or delay when recovering the securities lent out. This may restrict the Sub-Fund’s ability in meeting delivery or payment obligations from redemption requests and may trigger claims.
- There is a risk that the collateral received may be realized at a value lower than the value of the securities lent, whether due to inaccurate pricing of the collateral, adverse market movements in the value of the collateral, intra-day increase in the value of the securities lent, a deterioration in the credit rating of the collateral issuer, or the illiquidity of the market in which the collateral is traded. This may result in significant losses for the Sub-Fund if the borrower fails to return the securities lent out.
- By undertaking securities lending transaction, the Sub-Fund is exposed to operational risks such as delay or failure of settlement. Such delays or failure may restrict the Sub-Fund’s ability in meeting delivery or payment obligations from redemption requests and may trigger claims.
11. Passive investments risk
- The Sub-Fund is passively managed and the Manager will not have the discretion to adapt to market changes due to the inherent investment nature of the Sub-Fund. Falls in the Index are expected to result in corresponding falls in the value of the Sub-Fund.
12. 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 minimize tracking error. There can be no assurance of exact or identical replication at any time of the performance of the Index.
13. Trading risks
- The trading price of Units on the SEHK is driven by market factors such as the demand and supply of Units. 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.
14. Trading differences risks
- As the stock exchanges 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 stock exchanges and the SEHK may also increase the level of premium or discount of the Unit price to Sub-Fund’s Net Asset Value.
- Shares 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.
15. 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 HKD40 million. Investors may not be able to recover their investments and suffer a loss when the Sub-Fund is terminated.
16. Reliance on market maker and liquidity risks
- Although the Manager will ensure that at least one Market Maker will maintain a market for the Units, and that at least one 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 Units. There is also no guarantee that any market making activity will be effective.