Investment risk
- The Product is a derivative product and not intended for all investors. There is no guarantee of the repayment of principal. Therefore your investment in the Product may suffer substantial/total losses.
Inverse performance risk
- The Product tracks the inverse Daily performance of the Index. Should the value of the underlying securities of the Index increase, it could have a negative effect on the performance of the Product. Unitholders could, in certain circumstances including a bull market, face minimal or no returns, or may even suffer a complete loss, on such investments.
Long term holding risk
- The Product is not intended for holding longer than one day as the performance of the Product over a period longer than one day will very likely differ in amount and possibly direction from the inverse performance of the Index over that same period (e.g. the loss may be more than -1 times the increase in the Index).
- The effect of compounding becomes more pronounced on the Product’s performance as the Index experiences volatility. With higher Index volatility, the deviation of the Product’s performance from the inverse performance of the Index will increase, and the performance of the Product will generally be adversely affected.
- As a result of Daily rebalancing, the Index’s volatility and the effects of compounding of each day’s return over time, it is even possible that the Product will lose money over time while the Index’s performance falls or is flat.
Inverse Product vs. short selling risk
- Investing in the Product is different from taking a short position. Because of rebalancing the return profile of the Product is not the same as that of a short position. In a volatile market with frequent directional swings, the performance of the Product may deviate from a short position.
Unconventional return pattern risk
- Risk investment outcome of the Product is the opposite of conventional investment funds. If the value of the Index increases for extended periods, the Product will likely to lose most or all of its value.
Risk of rebalancing activities
- There is no assurance that the Product can rebalance its portfolio on a Daily basis to achieve its investment objective. Market disruption, regulatory restrictions or extreme market volatility may adversely affect the Product’s ability to rebalance its portfolio.
Liquidity risk
- The rebalancing activities of the Product typically take place near the end of a trading day, shortly before the close of the underlying market, to minimise tracking difference. As a result, the Product may be more exposed to the market conditions during a shorter interval and may be more subject to liquidity risk.
Intraday investment risk
- The Product is normally rebalanced at day end. As such, return for investors that invest for a period less than a full trading day may be greater than or less than the inverse investment exposure to the Index, depending upon the movement of the Index from the last rebalancing until the time of purchase.
Portfolio turnover risk
- Daily rebalancing of Product’s holdings causes a higher level of portfolio transactions than compared to the conventional ETFs. High levels of transactions increase brokerage and other transaction costs.
Futures contracts risks
- The Product is a futures based product. Investment in futures contracts involves specific risks such as high volatility, leverage, rollover and margin risks. The leverage component of futures contracts can result in a loss significantly greater than the amount invested in the futures contracts by the Product. Exposures to futures contracts may lead to a high risk of significant loss by the Product.
- A “roll” occurs when an existing futures contract is about to expire and is replaced with a futures contract representing the same underlying but with a later expiration date. The value of the Product’s portfolio (and so the Net Asset Value per Unit) may be adversely affected by the cost of rolling positions forward as the futures contracts approach expiry.
- There may be imperfect correlation between the value of the underlying reference assets and the futures contracts, which may prevent the Product from achieving its investment objective.
Japanese market risk
- The Product’s investments are concentrated in Japan. The value of the Product may be more volatile than that of a fund having a more diverse portfolio of investments. The Japanese economy is heavily dependent on international trade and may be adversely affected by competition from emerging economies, political tensions with its trading partners and their economic conditions, natural disasters and commodity prices. Because of the inverse nature of the Product’s intended returns, any adverse events on the Japanese market may have a favourable impact on the Product’s returns but this cannot be guaranteed. If any such adverse events are resolved without further detrimental effects on the Japanese economy, this may adversely affect the Product’s performance.
Difference in price limit risk
- The Product’s investment objective is to provide investment results that closely correspond to the inverse (-1x) Daily performance of the Index. Although the Index is an equity index, the Product invests in TOPIX Futures to achieve its investment objective. In Japan, the daily price limit for the stock market and the daily price limit for TOPIX Futures may be different depending on various factors including the share price of individual stocks. As such, should the Index’s daily price movement be greater than the price limit of the TOPIX Futures, the Product may not be able to achieve its investment objective as the TOPIX Futures are unable to deliver a return beyond their price limit.
Currency risk
- The TOPIX Futures are denominated in JPY, not the base currency of the Product (which is HKD). The Net Asset Value may be affected unfavourably by the fluctuations in the exchange rates between such currency and the base currency and by changes in exchange rate controls.
Passive investments risks
- The Product is not “actively managed” and therefore the Manager will not have discretion to adapt to market changes when the Index moves in an unfavourable direction to the Product. In such circumstances the Product will also decrease in value.
Trading risks
- The trading price of the Units on the SEHK is driven by market factors such as the demand and supply of the Units. Therefore, the Units may trade at a substantial premium or discount to the 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.
Trading differences risk
- As the TSE may be open when the Units are not priced, the value of any TOPIX Futures in the Product’s portfolio, and the value of any constituents in the Index to which such futures contracts are linked, may change when investors may not be able to buy or sell Units. Differences in trading hours between TSE and the SEHK may also increase the level of premium or discount of the Unit price to its Net Asset Value.
Tracking error and correlation risks
- Due to fees, expenses, transaction costs, high portfolio turnover, liquidity of the market and the investment strategy adopted by the Manager, the correlation between the performance of the Product and the Daily inverse performance of the Index may reduce. The Manager will monitor and seek to manage such risk in minimising tracking error. There can be no assurance of exact or identical replication at any time of the Daily inverse performance of the Index.
Termination risk
- The Product may be terminated early under certain circumstances, for example, where there is no market maker, the Index is no longer available for benchmarking or if the size of the Product falls below HKD80 million. Any distribution received by a Unitholder on termination of the Product may be less than the capital initially invested by the Unitholder, resulting in a loss to the Unitholder.
Reliance on market maker risks
- Although it is a requirement that the Manager will ensure that at least one market maker will maintain a market for the Units and gives not less than 3 months’ notice prior to terminating market making arrangement under the relevant market maker agreement, the Product may be required by the SFC to be terminated if there is no market maker for the Units. There is no guarantee that any market making activity will be effective.