ETFs tipped for big flows from Asia in 2015

Exchange-traded funds are expected to raise the most assets from Asian investors in 2015, finds an AsianInvestor survey. And private banks are expected to become more important to fund managers.
ETFs tipped for big flows from Asia in 2015

Exchange-traded funds will be the most popular product by flows from Asian investors in 2015, according to AsianInvestor's reader survey, conducted late last year. This reinforces a strong consensus in the market that demand for passive product will continue to grow this year.

When asked which product fund managers will raise the most assets from Asia-Pacific-based investors, ETFs were top by a significant margin, with 30.6%.

The surprisingly high figure gave ETFs a clear lead over all other products; managed accounts, mutual funds, and private and illiquid funds were behind ETFs with 18.8%, 15.6% and 13.8% respectively.

Fund industry executives, including managers of active product, told AsianInvestor in November they thought flows would accelerate into passively managed assets from Asian investors, across ETFs, institutional index mandates and smart-beta strategies.

The size of the region’s biggest institutions forces them to have substantial passive allocations. And these allocations will expand, since insurers, pensions and sovereign wealth funds in Asia Pacific are growing at a good clip. Then there are nascent moves into smart-beta, with Japan’s Government Pension Investment Fund and Taiwan’s state pensions early movers.

Moreover, with volatility expected to rise this year, investors remain keen on liquid, tactical, short-term strategies and will use ETFs cheaply to implement them, especially given increasing dissatisfaction with the level of fees charged.

Alternatives, meanwhile, did not get a vote of confidence from the AsianInvestor survey, with hedge funds regarded as the least likely to attract funds this year, with 4.4% of the vote, and structured products just ahead with 8.8%.

Optimism over ETF flows comes despite speculation that funds based on China A-shares in recent months have been losing money to Stock Connect, the Shanghai-Hong Kong cross-border trading scheme.

Fund managers will raise the most new assets
from Asia Pacific-based investors (institutional
and retail) for which type of product in 2015?
Asset class Number
of votes
of votes
Exchange-traded funds 49 30.6%
Managed accounts 30 18.8%
Mutual funds 25 15.6%
Private and illiquid funds 22 13.8%
Index funds 14 8.8%
Structured products 13 8.1%
Hedge funds 7 4.4%
Total 160 100.0%

Meanwhile, institutions are likely to provide the lion’s share of new investment flows coming from Asia-Pacific, according to a separate question in the survey. High-net-worth clients were next, well ahead of retail investors.

When asked which type of investor would provide the greatest volume of new flow/mandates from Asia Pacific, 61.9% of voters chose institutional asset owners. Coming in a distant second but still with a sizeable share were high-net-worth investors with 30.6%, yet retail flows scored a mere 7.5%.

Indeed, asset managers are boosting their focus on private banks as a channel for fund sales. For example, in August last year, BlackRock said it was looking to increase the headcount in its private bank sales team in order to support growth.

In 2014 Goldman Sachs Asset Management indicated it was expanding its presence in the private banking segment with a number of hires in its Hong Kong and Singapore offices, as reported.

Which type of investor will provide the greatest
volume of new flow/mandates from Asia Pacific?
Type of product Number
of votes
of votes
Institutional asset owners 99 61.9%
High net worth 49 30.6%
Retail 12 7.5%
Total 160 100.0%

AsianInvestor surveyed its broad reader base, which includes asset owners, asset managers and service providers from across Asia Pacific. In all, 173 regional respondents took part.

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