ETFs are gaining increasing support in Asia, attracting new institutional users and assets, according to a new report by Greenwich Associates, a provider of market intelligence and advisory services to the financial services industry.
Andrew McCollum, Managing Director at Greenwich Associates.
The firm interviewed 59 institutional investors for its 2016 Asian ETF Study, finding both an increase in ETF allocations among existing institutional ETF-users in the region, as well as the entrance of new users as additional institutions made their initial forays into ETF investing.
“Fueling this growth in Asia—and indeed around the world—is institutions’ continued adoption of ETFs for an expanding list of functions within their portfolios,” said Andrew McCollum, Greenwich Associates Managing Director.
The study also found ETFs were being used for a broader range of applications including longer-term strategic priorities like portfolio diversification and risk management, as well as shorter-term requirements such as tactically adjusting portfolios, taking on interim beta, managing liquidity, and equitizing cash.
According to Greenwich Associates, the advance of ETFs into new areas and applications is supportive of growth in the ETF industry over the long-term.
Indeed half of current equity ETF investors in the study say they plan to increase allocations to ETFs in the year ahead, with the majority of those expecting increases of more than 10%. For fixed income ETF investors, 44% of those surveyed stated their intention to increase allocations to bond ETFs over the next 12 months.
Greenwich Associates has also highlighted three key trends it believes will also contribute to fuelling continued ETF growth in Asia.
Firstly, increasing market volatility and rising interest rates should spur demand for fixed-income ETF use. Some of the top reasons stated by Asian institutions for employing ETFs are because they are easy to use, offer quick access and provide liquidity benefits – characteristics that become more valuable during periods of volatility. These institutions have cited expectations for a shift in the interest-rate environment as the primary reason they plan to step up their use of bond ETFs.
Secondly, Greenwich Associates believes greater demand for bond ETFs will be derived from multi-asset fund managers who are increasingly turning to ETFs to construct their portfolios. Over 50% of those surveyed incorporate ETFs in their multi-asset funds with some using ETFs for more than 80% of the assets in the fund.
Lastly, the firm notes that use of smart beta ETFs has nearly doubled in the past 12 months. Looking ahead, 54% expect to increase their allocations to smart beta even further with investments in dividend/equity income, sector smart beta, smart beta commodities, and smart beta fixed income identified as notable avenues of future growth.