Institutional use of ETFs set for rapid rise in Asia
18 Oct 2012
Asian institutional interests in exchange-traded funds are on the rise and allocations into this asset class may surpass Europe in the next five to 10 years, according to State Street Global Advisors (SSga).
With increasing use of ETFs for tactical purposes and demand for added sophistication in Asia, ETF assets in the region may double in the next couple of years and increase to between $300bn-$400bn in the next five to 10 years, says Frank Henze, MD and Head of SPDR ETFs, Asia Pacific. There are currently 470 ETF products in the region, including Japan, with $113bn of assets. Europe has 2,325 ETF products, with assets at $310bn.
"In Asia, we have strategic uses and core/satellite exposure, but we haven't got tactical uses or sophisticated uses like overlays, liquidity sleeve and optimised trading," Henze said. "The more and more these activities are undertaken, the more we see growth in the markets because liquidity drives assets and assets drive institutional investment and institutional investment drive assets, it's like a circle."
Investible institutional assets in the Asia Pacific and Australia region have grown considerable over the past four years, while Western markets have remained flat, SSga found in a survey looking at institutional uses of ETFs. Institutionally-held assets in Asia ex-Japan grew by 56% from 2009 to 2012, totally about $8trn now. Institutionally-managed superannuation assets in Australia rose by 25% over the same period, while assets in Japan fell 3%.
The survey was commissioned by SSga and conducted by Greenwich Associates. Greenwich interviewed The study of institutional investors across the region was conducted in July and August and Greenwich interviewed 123 asset managers and proprietary traders in Asia.
Asian institutions expect to expand their use of these products mainly in equities, especially those that provide exposure to international, domestic, Asian and emerging markets and access to specific markets that would otherwise be difficult or expensive to access through mutual funds or other products.
Author: Wing-Gar Cheng