Double-digit rise in Asian active ETF assets set to spur more growth
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Global exchange traded fund issuers are looking to capitalise on the double-digit growth in active exchange traded fund assets among Asian institutional investors last year.
Assets allocated to active ETF strategies last year in Asia Pacific ex-Japan stood at $51.25bn, a nearly 19 per cent increase from the $43.12bn in 2020, according to data from Brown Brothers Harriman.
While the rise lags behind the growth in active ETF assets globally, which rose by more than 50 per cent to $437bn in 2021, appetite among institutional investors in the region is starting to catch up with their global peers.
Sean Cunningham, Hong Kong-based Asia head of ETFs at JPMorgan Asset Management, said there had been a marked increase in interest in active ETFs in the region over the past two years.
That change in sentiment is not immediately obvious if you consider Hong Kong-listed active ETFs, for example. The territory’s first active ETF listed in June 2019 and there are now nine such ETFs listed on the territory’s bourse. Total assets are just HK$3.2bn ($409.1mn), however, out of a total ETF market cap of HK$429bn, as of end-2021.
But flows from Asian institutional investors, who are able to invest in active ETFs listed in other global markets, point towards an increasing familiarity with the asset class.
For JPMAM, more than 50 per cent of inflows into its Asia ETF business last year were in the active range, according to Cunningham, a higher proportion than in the ETF market globally.
“We’re extremely focused on bringing those types of strategies to Asian investors because that’s where we feel we’re going to compete with the rest of the houses on the street,” he said.
Jakob Nilsson, Singapore-based head of distribution for Asia Pacific at Federated Hermes, said the tax efficiency and lower pricing of active ETFs were key considerations for regional investors, especially versus buying the underlying funds of those ETF strategies.
“It’s an interesting way for investors to bypass some of that, and I suspect it should be a more cost-effective way to do it because when you’re using a distributor there’s lots of fees layered on,” said Nilsson.
That lower cost of being able to invest in an active strategy while also having the transparency and liquidity of an ETF is a key attraction for Asian investors, according to Chris Pigott, Hong Kong-based head of Asia ETF services at Brown Brothers Harriman.
About 79 per cent of investors in Greater China said they would allocate more to active ETF strategies this year, up from 71 per cent last year, according to a recent survey conducted by the firm.
This increasing interest is also a result of the overall education of investors and different markets becoming more involved in launching and promoting these types of products, Pigott said, highlighting the Australian ETF market in particular.
Active ETFs account for only 8 per cent of all ETF flows in Australia, but more than a third of the 33 new product launches last year were active strategies.
Among Greater China investors, the top concern around active ETFs is manager tenure and experience, followed by trading volume of the product and performance, said Pigott.
People want to ensure that they understand the manager of the product and their record in managing that strategy across different types of market conditions, he said.
Federated Hermes is a relatively new player in the active ETF landscape, having just launched its first two active ETFs in the US in December.
The Federated Hermes Short Duration Corporate ETF and Federated Hermes Short Duration High Yield ETF had combined assets of $53.6mn at the end of February.
At the moment, the firm is mainly focusing on its US retail customers, said Nilsson, but it is something that the manager would want to consider “having in our briefcase” when seeing clients in Asia.
For JPMAM, the most successful strategy in the active space last year in Asia was the JPMorgan Equity Premium Income ETF, which invests in S&P 500 stocks while using trading options to supplement income.
The ETF, which had global assets of $6.47bn as of end-January, was responsible for a large part of JPMAM’s active flows from Asia in 2021, said JPMAM’s Cunningham, and the firm expects this strategy to continue to be a big draw for local investors.
The US manager also listed two new active ETFs on European exchanges last month, including the first active China equities ETF and an Asia Pacific ex-Japan equities ETF.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.