Chris Pigott, Brown Brothers Harriman
The appetite for ETFs continues to swell in Greater China, especially for thematic and fixed income products as advances in digital assets and innovation in ESG ETF strategies evolve, according to the findings of Brown Brothers Harriman’s (BBH) 4th annual Greater China ETF Investor Survey.
As much as 92% of investors in the region expect to increase their allocation to ETFs in the next year, an increase of 10 percentage points from 2020.
“As ETFs command a greater role in their portfolios, investors are naturally turning to more nuanced ETF types—whether that be ESG, active, fixed income, or thematic ETFs—to capitalise on opportunities or mitigate risk,” said Chris Pigott, senior vice president and head of ETFs, Asia at BBH.
Investors in each market have distinct views on key criteria for selecting ETFs. In mainland China and Taiwan, historical performance was the most important factor, while in Hong Kong, investors focused on trading volume, the survey found.
Meanwhile, cross-border investing between Hong Kong and mainland China has been given the go-ahead after trading began last week in the long-awaited ETF Connect scheme.
Thematics
Thematic ETFs, in particular, are attracting interest, with 91% of mainland China, 86% of Hong Kong, and 74% of Taiwan investors looking to increase allocations to sector-specific funds this year.
Technology-focused ETFs are especially popular, and specific areas such as artificial intelligence, robotics and electric vehicles are gaining traction.
Cryptocurrency-linked ETFs figured second among preferences (after thematic or ESG) in mainland China, Hong Kong and Taiwan. Given the considerable gains in the value of digital assets throughout 2020, it is not surprising that many investors are gravitating toward fintech/crypto ETFs, noted the report.
“Thematic ETFs have been a success story in the region as investors have utilised these products as an access vehicle to gain exposure to megatrends that are driving global economic growth,” said Pigott.
ESG
As elsewhere in the world, ESG has also captured the region’s attention, the survey found. Globally, a record $89bn flowed into ESG ETFs in 2020, well above the $28bn of flows in 2019, according to ETFGI.
This year, 92% of investors in Greater China plan to allocate more capital to ESG strategies , and in five years 53% of them expect to have at least 11% of their portfolio in ESG ETFs.
There is also a strong appetite for fixed income ETFs, with 76% of respondents intending to increase their exposure to products linked to the asset class
The Greater China findings are a subset of a larger global ETF investor survey that measured the expectations and preferences of 382 global ETF investors. There were 146 respondents, including fund managers, financial advisors and institutional investors, from Greater China. About three-quarters of them manage more than $100m in assets and 56% have more than 25% of their portfolio invested in ETFs.
The ETF market in Greater China now totals about $270bn, according to BBH.
