Asia-Pacific’s ETF industry is taking off, says Invesco executive

The Asia-Pacific region has not only become the fastest-growing exchange traded fund market in the world, but distribution is reaching a broader range of clients than in the US or Europe, experts say.

Speaking during an Ignites Asia webcast, Tom Digby, Invesco’s head of ETF business development and capital markets for Asia-Pacific, said ETF assets in the region were growing at between 26 per cent and 30 per cent per year in countries from Australia to China to South Korea.

The growth rate is faster than in Europe, which has the second-fastest ETF asset growth with an 18 per cent compound annual growth rate.

But what is sometimes overlooked is that Asia-Pacific investors are “domicile agnostic” and a sizeable amount of money goes into offshore ETFs as well as into those domiciled in local markets, according to Digby.

This article was previously published by Ignites Asia, a title owned by the FT Group.

He estimated that Asia-Pacific investor money allocated to ETFs domiciled in the US and Europe had grown to between $500bn and $700bn.

“What we have seen is really Apac growing quickly into US and European domiciled products as well as the local domiciled market,” Digby said.

Taiwan has been at the forefront of ETF growth in the region. Total assets in 227 Taiwan-listed ETFs had grown to NT$3.27tn ($103.61bn) by the end of October, representing a growth of 32 per cent from NT$2.47tn in January.

Liu Tsung-sheng, chair of Taiwan’s Securities Investment Trust and Consulting Association, said growth was being driven by end-investor demand with YouTubers and finance-focused key opinion leaders all helping to spread the word and grow awareness and acceptance of ETFs.

“We can see that the acceptance level for ETFs now has become overwhelming,” said Liu, who is also chief executive of Yuanta Funds.

Traditionally, ETF clients primarily were portfolio managers using the products as low-cost asset allocation tools in the wealth management space, but distribution of ETFs is now being “stretched”, Digby said.

On the one side is the stretch to institutions: sovereign wealth funds, pension funds, insurers looking for fast, low-cost access to markets. On the other side, there is also a significant increase in adoption by retail investors.

This multi-faceted growth in ETF distribution being witnessed in the Asia-Pacific is not happening in the same way outside the region. In Europe, ETF growth is faster in the retail sector, while in the US there is more uptake among institutions, according to Digby.

“But in Apac it’s happening everywhere, all at once,” he said.

While some regulatory changes in the region are creating tailwinds for retail distribution of ETFs, other opportunities are opening up.

Japan’s Nippon Individual Savings Account, a popular private pension scheme in the market, will allow offshore ETFs to go into the stock market in the next few months, while offshore ETFs have also now become eligible pension products in South Korea.

“These markets across the Asia-Pacific region are slowly looking at how they can essentially give investors a little bit more of flexibility, in terms of cost-efficient, cheap, transparent, low-cost product that does exactly what it says on the tin and regulate it in the right ways,” said Digby.

Many Asia-Pacific markets, including Australia and South Korea, have seen appetite for active ETFs surge in the past few years.

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The Singapore Exchange announced this week that it will soon allow the listing of actively managed ETFs, following Japan earlier this year.

“There are now 2,000 active ETFs available,” Digby said.

But with international and local fund houses launching more ETFs as the growth in the Asia-Pacific region accelerates, concerns are being raised over an oversupply of passive funds.

Conal McMahon, senior consultant at Three Lions AWM Advisory, said during the webcast that the Asia-Pacific region had not yet reached an oversupply of passive funds, as there “still seems to be quite a lot of investor demand”.

“Chinese regulators have taken a lot of steps in the last couple months to accelerate listing of ETFs in some of the new markets there, and they seem to be quite well received by the investors,” he explained.

Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.