Published by Asia Asset Management – 5th Jul 2018
BlackRock Inc., the world’s largest money manager, has seen assets of its Asia Pacific exchange-traded funds (ETFs) soar to US$100 billion over the past three years driven by greater allocations from big investors, according to a senior company official.
Geir Espeskog, BlackRock’s iShares head of distribution for Asia Pacific, says assets under management (AUM) of the company’s ETFs doubled between 2015 and 2018 to reach the triple-digit-billion mark as of January 2018.
“About 70%-80% of our growth in the region has been driven by institutional investors including pensions, sovereign funds, and insurance companies,” Mr. Espeskog tells Asia Asset Management in an interview.
Their ETF adoption is “growing very fast” because they are allocating a greater share in their portfolios to the funds, he adds.
He says BlackRock drew total ETF inflows of $2.9 billion from insurance companies in Asia Pacific in the first quarter of 2018, up from $1.8 billion in all of 2017.
These insurers held $22 billion of BlackRock ETFs as at March 31, 2018, representing a “significant” 20% of the company’s total ETF AUM in the region, he says. Japanese insurers account for half, and the rest are held by counterparts in Asia ex-Japan, including from Hong Kong, South Korea, Singapore, Taiwan, and Southeast Asian countries.
Mr. Espeskog believes big investors are allocating more to ETFs as they seek greater international diversification.
“ETFs are more commonly used by insurers to invest their allocation abroad,” he says. More insurance companies are also building multi-asset portfolios with ETFs because of their low cost and greater flexibility, he adds.
According to Mr. Espeskog, investors are realising that asset allocation rather than individual stock picking capability is becoming important for alpha generation, and ETFs can help them do this more effectively.
He plays down the possibility of investors switching from passive to active strategies in an increasingly volatile market environment, which would potentially dampen demand for ETFs.
Mr. Espeskog says the fact that ETFs make up only a small share of the global stock market capitalisation, and that institutional investors are seeking to replace expensive assets such as futures contracts in their portfolios with ETFs, suggest there is a lot of room for the market to grow.
The global ETF market capitalisation is around $5 trillion compared to $68 trillion for the global stock market, he says.
