Globally, smart beta products appear to have lost some of their appeal. But in Asia, their market share continues to grow, albeit still lagging far behind Western markets.
The AUM in smart beta ETFs domiciled in Asia increased to $18.2bn at the end of 2017, a 68.7% increase over the previous year. Net new assets contributed $4.41bn of this growth, while the rest can be attributed to market growth.
Japan, Asia’s biggest ETF market, accounted for $3.38 of the net new assets compared to $1.03bn for the rest of Asia.
The assets of smart beta funds in Japan increased to 5.4% in 2017 from 5.2% in 2016 and 4% in 2015.
Six Japanese ETFs tracking the JPX-Nikkei 400 are the biggest smart beta ETFs in Asia, with $12.2bn in cumulative assets. The JPX-Nikkei 400 index includes Japanese companies with “high appeal to investors”, according to the index provider, which are screened based on their financial performance and governance standards.
In other Asian markets, the share of smart beta products among ETFs has also been increasing, notably in South Korea, to 4.6% up from 2.9% two years earlier, and in Taiwan, to 6.5% up from 3.7% two years earlier.
The biggest smart beta ETFs in Asia outside Japan are the Yuanta/P-shares Taiwan Dividend Plus ETF, with $358m in assets and the Arirang High Dividend ETF, listed in Korea, with $338m in assets.
Smart beta ETFs in Asian markets
| Market | AUM in all ETFs | Smart beta ETF assets | ||
| Dec 2015 | Dec 2016 | Dec 2017 | ||
| Japan | $273.4bn | 4.0% | 5.2% | 5.4% |
| Hong Kong | $38.7bn | 0.6% | 0.7% | 0.9% |
| China | $34.9bn | 1.1% | 1.0% | 1.6% |
| South Korea | $33.3bn | 2.9% | 4.4% | 4.6% |
| India | $12.2bn | 0.2% | 0.1% | 0.1% |
| Taiwan | $11.7bn | 3.7% | 3.2% | 6.5% |
| Singapore | $5.79bn | 0.3% | 0.7% | 2.2% |
| Malaysia | $483m | 0% | 5.4% | 5.4% |
| Thailand | $478m | 0.6% | 0.4% | 0.4% |
Data: Morningstar, 31 December 2017
Lower inflows?
Smart beta ETFs listed globally held $658.4bn in assets at the end of 2017, according to ETFGI, 32.3% more than at the end of 2016. Nevertheless, the assets of smart beta ETFs among all ETF products has declined to 16.8% in December 2017 from 17.7% a year earlier.
Analysis of Morningstar fund flow data shows that this can be attributed to lower net new inflows into this type of product.
The growth as a result of market appreciation amounted to 18% for smart beta ETFs, on average, and 18.4% for the traditional market cap-weighted ones. Net new assets, however, accounted for only a 12.6% increase for smart beta products, and 20.4% increase in assets for traditional ETFs.
In the US, the world’s largest ETF market, the AUM in smart beta products accounted for around 20.6% of all ETFs. The share has declined from 21.7% at the end of 2016. Ireland, Canada, Australia and New Zealand also stand out among major ETF markets, with the assets of smart beta products between 9.6% and 12.1%.
Globally, Blackrock iShares leads the ranking table with $308bn of AUM in smart beta ETFs, and Vanguard is second with $167bn.
Among Japanese ETF providers, the Japanese bank Nomura has the highest AUM in smart beta products, $6.29bn.
