Lion Global Investors launches Singapore’s first actively managed ETF

LION Global Investors (LGI) has launched a new Japan-focused exchange-traded fund (ETF), which is the first actively managed ETF in the Singapore market.

The Lion-Nomura Japan Active ETF (Powered by AI) – which was launched on Friday (Jan 12) in collaboration with Nomura Asset Management group – comes around a month after the Singapore Exchange (SGX) rolled out new listing requirements allowing active ETFs.

The new fund aims to provide “long-term capital growth” by investing primarily based on results from proprietary artificial intelligence (AI) and machine-learning models that analyse fundamental, technical, qualitative and quantitative metrics.

It will focus on 50 to 100 Japanese companies with strong growth potential based on AI model scores, together with selection and weightage by the manager and investment adviser.

Unlike passive ETFs, which track the performance of an index, active ETFs allow for investment managers to make investment decisions on the portfolio in a bid to deliver outperformance.

Teo Joo Wah, chief executive of LGI, told The Business Times that two benefits of ETFs over mutual funds are that they are more cost-effective and investors can trade intraday.

“You want investors to get the most cost-effective and cost-efficient manner to get exposure, so theoretically an ETF is a better route for investors,” he said.

He added that the new product expands on offerings to cater to different types of customers. “The guy who buys a mutual fund may not buy stocks, and the guy who buys stocks may not buy a mutual fund,” Teo said.

The Lion-Nomura Japan Active ETF will have annual management fees of 0.7 per cent – higher than the 0.4 to 0.5 per cent per annum management fee of LGI’s other passive ETFs – but lower than the typical 1 to 2 per cent management fee for actively managed unit trusts.

Incorporating AI in the process helps reduce some of the higher costs usually associated with active management.

During a panel discussion at the launch of the ETF, experts noted that AI could help streamline the process in selecting stocks.

Ong Ai Ling, head of AIOI (artificial intelligence of investments) at LGI, noted that their AI models incorporate over 200 factors for each company in their investment universe. “If I were to use human analysts to do all those calculations, adjustments and analyses, I would probably need to hire 100 analysts, or at least 50 analysts,” she said.

Kazuhiko Yoshimatsu, general manager of Japan Exchange Group, noted that there are over 3,800 listed companies in Japan, but there may be an information gap between corporates and investors, which may partly be due to language differences.

AI can help with some of these gaps, he said.

The use of AI and an active strategy can also allow for a more dynamic portfolio.

Ong noted that passive ETFs track indices that are only rebalanced quarterly or semi-annually. “With an active ETF and one that is powered by AI, we rebalance our portfolio every single month,” she said, adding that their data points can take into account market movements every single day.

LGI also believes that gaining access to Japan would be of interest to investors here.

The Tokyo Stock Price Index (Topix) – which is the reference benchmark for the new ETF – rose 25.1 per cent in 2023, beating the Straits Times Index and MSCI AC Asia ex-Japan Index. It also climbed to its highest level in 34 years this week.

LGI’s Teo observed that many Singapore investors may be less familiar with the Japanese markets. “My personal belief is that there are tailwinds for the Japanese market. They have corporate reforms, they have the end of deflation,” he said.

“When you add Japanese (exposure) to your total portfolio, it provides good diversification.”

The Lion-Nomura Japan Active ETF will have an initial offer period from Jan 5 to 25 and will be available in both Singapore dollar and US dollar denominations. It is scheduled to list on the SGX on Jan 31.