Asia’s exchange-traded funds (ETF) market experienced several new developments over the past year that indicate further growth and sophistication.
These new developments are pushing ETF providers, brokers, market makers, index providers, and custodians to become more innovative and responsive to the evolving needs of their investors.
Assets invested in the global ETF/ETP industry reached a record US$5.64 trillion as of August 2019, according to ETFGI, with about 6% of this in the Asia-Pacific. Allocations to ETFs increased to 23% of total assets in 2018, up from 14% in 2017, according to a study by Greenwich Associates.
Despite increased volatility which resulted in outflows from some Asian ETFs, the use of ETFs continued to expand in the region due to new developments such as portfolio reallocation to equities, which, in turn, resulted in a growing preference for fixed income ETFs as investors diversified their portfolios away from equities; the shift away from active strategies to passive strategies, of which ETFs are the most basic; as well as the trend towards investing in environmental, social, and governance (ESG) assets.
As a result, ETF providers are offering newer and innovative ETF products that often cater to customized requirements of investors.
Money market fund ETFs, for example, are growing in popularity among investors who wish to benefit from this asset class that provides stable returns and liquidity. Leverage & inverse (L&I) ETFs are also seeing growing demand.
In other market developments, the inclusion of the China A-shares in the global MSCI index saw increased interest in A-share ETFs. For the week during when the inclusion was announced on February 25, the average daily turnover (ADT) of A-share ETFs surged 90% from a week earlier to HK$5.5 billion (US$0.7 billion), accounting for 72% of the total ADT in Hong Kong’s ETF market.
Going forward, fixed income ETFs are expected to continue experiencing strong growth as bond investors learn to utilize their liquidity and flexibility for adjusting the duration of their bond portfolios in the wake of persistently low interest rates.
ETFs with ESG themes are also expected to become more in demand as Asian institutional investors are beginning to understand the importance of using ESG ETFs to increase the ESG allocation of their portfolios. It is in this context that The Asset is proud to announce the winners of The Asset Triple Asia ETF Awards 2019. Please click here for the list of winners.