Retail investors are being reminded to be cautious when buying exchange-traded funds tracking Hang Seng TECH Index as ETFs do not guarantee low risk, especially amid global concerns of technology bubble.

All three ETFs tracking the Hang Seng TECH Index closed lower last Friday as the global technology shares saw correction.

Hang Seng TECH Index ETF (3032), the latest launched fund, opened 7 percent lower than the initial offered price of HK$7.9094 last Friday. It ended at HK$7.67. ChinaAMC Hang Seng TECH Index ETF (3088) was down 0.51 percent. CSOP Hang Seng TECH Index ETF (3033), which has drawn overwhelming responses from investors on its debut on August 28 also fell 1.16 percent. Hang Seng TECH Index fell 1.53 percent.

What's worst, many investors buying CSOP Hang Seng TECH Index ETF on its debut have been suffering huge losses due to the volatile price movement, that could hardly be recovered.

This was probably due to a rare move by the issuer, CSOP Asset Management which allowed retail investors to subscribe during the initial offering period (IOP) through dealer Valuable Capital.

Initial public offering of stocks is no stranger to retail investors. However, the practice for ETFs, which is known as IOP, is ususally available for institutional investors only.

On its debut, it performed similarly to some well-received IPO of stocks. During the pre-opening session, there were a large number of sell orders led by Valuable Capital. One of the market makers, Flow Traders Hong Kong took some of the sell orders. The highest sell order was priced at HK$42. The ETF opened at HK$20 per unit, still 1.67 times higher than the announced net asset value (NAV) and the initial offered price of HK$7.5.

In the first three minutes of the opening session, 2.95 million units were traded at prices from HK$14.62 to HK$20 per unit. The high-price transaction was maintained for 3 minutes and then was adjusted.

Based on the closing price of only HK$7.615, the investors who bought the ETF in the first three minutes, lost HK$27.5 million in total.

With the unusual price movement, the turnover of CSOP Hang Seng Tech Index ETF on the first trading day reached around HK$3.05 billion, the highest among locally listed ETFs. It surpasses the Tracker Fund of Hong Kong (2800) debut, which recorded HK$2.86 billion on November 12, 1999.

CSOP Asset Management says it is suspected some market makers sold the ETF at a high price level after stockpiling. The issuer emphasizes there were potential investors before its debut and it does not hold any CSOP Hang Seng Tech Index ETF itself. Most of its revenue comes from the management fee.

CSOP Asset Management adds market makers can only maintain the price after the market opens. To meet the demand and to maintain the price, CSOP issued additional ETF units based on the NAV in the primary market and redeems some units as price deviated the NAV.

Tony Wong, head of intermediary sales of CSOP Asset Management admits it is not common for retail investors to subscribe ETFs during IOP but CSOP Hang Seng TECH Index ETF is not the first and only one. He adds the issuer hopes to let retail investors who are eager to buy to get in the market first.

He further explained some investors treated the ETF as a popular IPO like Nongfu Spring, then they chased the fund at a high level. However, ETF is set to offer stable income for long-term investment.

ETF is regulated by the Securities and Futures Commission. Exchange-traded product issuers need to comply with the Code on Unit Trusts and Mutual Funds, such as disclosure, redemption, and share buy-backs. The code is only guidance without any legal effect. SFC has not replied to The Standard's inquiry.

Listed last Thursday and Friday, ChinaAMC Hang Seng TECH Index ETF and Hang Seng TECH Index ETF gave another picture. They were not offered to retail investors during IOP.

ChinaAMC Hang Seng TECH Index ETF and Hang Seng TECH Index ETF did not deviate significantly from their NAV on their debuts.

The first-day turnover of the two ETFs was much lower than CSOP Hang Seng TECH Index ETF. ChinaAMC Hang Seng TECH Index ETF's transaction volume was HK$74.12 million. As for Hang Seng TECH Index ETF, it was HK$167.02 million.

All three ETFs are similar, tracking the Hang Seng TECH Index, economist Andy Kwan Cheuk-chiu, director of ACE Centre for Business and Economic Research says.

"It is sensible to choose the one with the lowest management fee and ongoing charges," Stanley Chik Yiu-fai, head of research at Bright Smart Securities & Commodities (1428) says.

Also, CSOP 's Wong adds investors should be cautious about the difference between the bid and ask price, as well as the turnover when choosing ETF tracking the same index.

He advises investors to compare the NAV of the ETF and the unit price.

In the case of CSOP, the opening price of HK$20 was trading at 166.67 percent premium.

This is unusual. Chik says ETFs' premium is usually within 1 percent.

The issuers disclose their products' NAV in their official website. Also, some trade platforms provide data on NAV and premium.

Kwan says investors should not chase madly on the ETF and should wait for the price adjustment. They should also set a price range when buying ETFs.

Perils abound in Tech ETFs hardwagon