ETF Securities has become the latest commodity-investment firm to expand into or launch new products in Asia. The London-based exchange-traded commodity (ETC) provider is seeking to grow its business in the region, having had a presence in Australia since 2009.
Nigel Phelan became the firm’s first director of Asia in January and will relocate to Hong Kong from Sydney, most likely in the second half of this year. He has been with the company since 2006 and has spent time in senior roles in the London office, before moving to Australia to set up the business there.
ETF Securities already has ETCs listed in Tokyo and is now focusing on Hong Kong and Singapore as the major exchanges for its business, says Phelan. It is in talks with regulators in those markets about launching products in the next six to 12 months, as well as with the China Securities Regulatory Commission about eventually listing ETCs in Shanghai.
To expand onto the mainland, it will help to have a presence in Hong Kong, notes Phelan, who declines to speculate on the likely timeframe for listing products in China.
“We’ve made initial contact [with the CSRC], and they clearly realise the huge potential for the market,” he says. It is understood the Chinese regulator is looking to relax some of the rules for foreign companies setting up onshore.
ETF Securities is mulling setting up a joint-venture and is talking to both asset managers and distributors, adds Phelan, although it will be some time before it is able to list there.
In respect of Hong Kong and Singapore, he hopes to list products as soon as possible, but it will depend on when the firm gains approvals from the regulators.
As for Asian investor demand for ETCs, “we’re seeing what we saw in Europe two or three years ago, and in the US before that, when people wanted to include commodities cost-effectively in their portfolio through instruments like these,” says Phelan.
“We want to be here while they’re looking at that,” he adds. “We want to be here to show clients the best way to include our ETCs in their portfolios.”
Once Phelan has determined the level of demand for ETF Securities products in the region, he will expand the team in Hong Kong, initially with sales staff.
Regionally, ETF Securities has seen reasonable asset inflows in Japan in the last 12 months, but Phelan expects to see the biggest asset growth in the Asia ex-Japan region over the coming 12 to 24 months.
As one of the fastest growing asset managers in Europe, ETF Securities is seeing a strong rise in assets under management, with $26.5 billion currently, having seen $8 billion in inflows last year and $16 billion in 2009.
As for the likely pace of growth of the ETC market in Asia, Phelan suggests it will be slow going initially. As with any exchange-traded market, there will be an element of education in the first 12 months for investors, he says, followed by a tipping point, from which the market will develop quickly.
Many of ETF Securities’ clients are actively managed commodity funds that use ETCs as the underlyings for their funds. But Phelan hasn’t seen so much interest from fund managers in Asia as yet; rather, private banks will be the main drivers of demand for ETCs initially.
“The good thing about the Asia-Pacific profile of private bank offices is that many have had exposure to our products in Europe and the US before,” he adds. “So we already have an avenue where investors know how they work.”
Given high and rising demand for commodities globally, widespread concerns about inflation (particularly in emerging markets) and fast-growing exchange-traded fund (ETF) and exchange-traded product (ETP) markets, it may be that ETF Securities is onto a good thing.
With regard to the competition in Asia, Phelan is not overly concerned about large ETF/ETP players like BlackRock’s iShares unit or State Street, because there is not a lot of product crossover.
ETF Securities offers over 200 products globally, tracking individual commodities or indices, and most of the index products are based on the Dow Jones UBS index family.