The Tokyo Stock Exchange (TSE) has set a goal of having 100 exchange-traded funds listed by the end of 2010, says Yasuyuki Konuma, head of research and business development for the TSE's corporate planning department.
The TSE now has 58 ETFs, compared with only 13 at the start of 2007. Assets under management have risen to nearly ¥500 billion ($54 billion). Though, AUM has been flat throughout 2008 as the equity markets have plummeted: the Topix fell from 1,400 in January 2008 to 850 by the end of the year. Not surprisingly, domestic equity ETF listings have ground to a halt.
Prior to the financial crisis, take-up of ETFs had been strong among individual investors and brokers, as well as international hedge funds, although Japanese financial institutions and money managers have not been active participants. The TSE hopes that by adding to its range of ETF products, more institutions will use these as tools in portfolio construction.
Turnover in the biggest ETF, a Nikkei 225 index tracker managed by Nikko Asset Management, remains modest, and would rank somewhere around 90th to 100th if compared against single stocks.
The growth in ETF listings has been helped by deregulation. The Financial Services Agency has allowed ETFs to cover indices for bonds, Reits, commodities and commodity derivatives.
The end of 2008 saw Nikko Asset Management and Nomura Asset Management launch two domestic Reit-backed ETFs, the first products on the TSE other than those tracking equity indices.
This year the TSE hopes to attract its first fixed-income ETFs, says Konuma. It is also keen to see a gold tracker, based on physical underlying. (The Osaka Stock Exchange has a gold equity-linked note.)
The exchange is also interested in diversifying its portfolio of international equity ETFs. The TSE now has just three, covering China, Korea and Brazil equities, while the Osaka bourse has ETFs tracking South Africa and Russia.
Konuma says the TSE's challenge is to promote these products, because investor awareness is low. The exchange has budgeted resources for advertising, seminars and online campaigns.