Published by Asia Asset Management – 12th Apr 2019
Asia’s large investors almost doubled their allocations to exchange-traded funds (ETFs) last year as they looked to diversify their portfolios and also adjust to short-term market fluctuations, according to an annual study by BlackRock and US financial consultancy Greenwich Associates.
Asian institutional investors allocated 23% of their total assets to ETFs in 2018, up from 14% in 2017.
The findings are based on BlackRock’s poll earlier this year of 51 Asian institutional investors, including insurance companies and institutional funds, 40 of which were already ETF investors.
Some 55% of overall respondents said they used ETF to diversify their portfolios in 2018, slightly up from 54% in 2017, while almost half the respondents who were already investing in the funds expected to increase their allocations this year, BlackRock says in a report on the survey results released on April 10.
According to the company, Asian institutional investors are increasing their use of ETFs in the short term in response to rapid market fluctuations. Their adoption of ETFs for such tactical portfolio adjustment jumped to 63% in 2018 from 51% in the previous year.
“We’ve seen a clear trend of institutional investors adopting ETFs, as they seek to diversify their portfolio. Asia’s institutional investors are embracing multiple ETF applications, enabling core asset allocation, tactical as well as strategic approach to investing across asset classes,” Geir Espeskog, head of iShares distribution for BlackRock Asia Pacific, says in the report.
Although the share of respondents using bond ETFs dropped slightly to 43% last year from 44% in 2017, BlackRock notes a “sharp upward trajectory” of ETF allocations in bond portfolios to 26% in 2018, from 17% in 2017.
“At a time of market volatility, we are seeing expansion in both breadth and depth of fixed-income ETF adoption by client portfolio,” Mr. Espeskog says.
The study also found that Asian institutional investors have a growing appetite for factor-based investment strategies, with 70% respondents investing in factor-based ETFs last year. Minimum volatility ETFs and dividend or equity income ETFs are the most popular smart-beta products.
China’s growth is also boosting demand for ETFs. Given that the emerging-market giant is becoming increasingly represented in global benchmark indices, ETFs are “ideal tools to provide investors with liquidity, diversification and ease of access to the world’s second largest capital market”, according to Mr. Espeskog.
BlackRock, the world’s largest asset manager, had US$5.98 trillion of total assets at the end of 2018.
