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The list includes 15 equities, fixed-income and commodity indices calculated by Citi, Lehman Brothers (which has since been transferred to BarCap), Merrill Lynch, JPMorgan, S&P, Dow Jones Indexes, Nasdaq and MSCI. These will allow insurers ETF access into some of the core asset classes such as US and Asian equities, global investment-grade debt, world government bonds, and will also include asset classes that have come into pre-eminence in recent years such as emerging market debt and emerging market equities.
Thomas Chang, a director at the Insurance Bureau in Taipei, says the announcement is a follow-up to the bureauÆs approval for insurers to begin ETF investments in March. He notes insurersÆ investments into ETFs are still in a beginning stage. The current lists will set the boundary with the most frequently used indices that local insurers already favour. He says the current revision has taken into consideration the local insurance industryÆs response and adds there is possibility of updating the list as the ETF market develops.
The bureau's efforts in opening up the offshore ETF sector for the industry are laudable. Insurers will appreciate the new found transparency with ETF settlements and are able to expand their sources of beta as they implement strategic market exposure, take directional views and improve liquidity management with the expanded use of ETFs. Such developments could feed back into the domestic ETF industry and bolster its viability over the long run.
However, the current update does contain some restrictions. It limits ETF investments to those that are index-linked. The update makes no mention of single market, sector-based access products, theme-based indices or strategy-embedded products such as FTSEÆs fundamental indices that have gained traction among the Asian institutional crowd in recent years. And perhaps most curiously, it has also made no mentioning of Hong Kong or China-linked ETFs, such as the popular FTSE/Xinhua A50 index.
According to Barclays Global InvestorsÆ latest research report, Japan and Hong Kong are AsiaÆs two largest markets for ETFs. As at the end of the third quarter this year, ETF assets under management totalled $27.56 billion in Japan. Hong Kong ranks second with $13.24 billion and a total listing of 23 ETFs (11 of which are primary).
Elsewhere, South Korea boasts 35 ETFs, all primary, with $3.14 billion in AUM. ChinaÆs five domestic offerings total $2.67 billion in AUM. Taiwan ranks fifth, with 11 local funds and $1.83 billion under management, just before SingaporeÆs $1.1 billion in AUM. The lion city has 18 funds, of which 5 are primary listings.
Globally, total AUM have dropped by just 4.1% during the world financial crisis. Year-to-date, BGI says there has been an increase in ETF listings by 585. A total of 328 of these are new ETFs in primary listings. There are now 1,499 ETFs around the world and a total of 2,494 recorded listings. Worldwide, ETFs have $764.08 billion under management.
Of the total ETFs worldwide, 50.5% are held in North American equity funds, 11.9% in fixed income, 11% in emerging market equity, 10.7 in European equity, 5.9% in global ex-US equity, 1.5% in global equity and 1.2% in commodities.
The Insurance BureauÆs current list of 15 acceptable ETFs includes:
Citigroup World Government Bond Index
Citigroup World Broad Investment Grade Index
Lehman Brothers Global Aggregate Index
Merrill Lynch US High Yield Master II Index
Merrill Lynch Global High Yield Index
JPMorgan Global Government Bond Index
JPMorgan Emerging Markets Bond Index Global
S&P 500 Index
Dow Jones Industrial Averages Index
Nasdaq Composite Index
MSCI Emerging Market Index
MSCI Asia ex-Japan Index
MSCI Latin America Index
MSCI Eastern Europe Index
Dow Jones AIG Commodity Index
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