Part of the appeal of ETFs is, of course, their relatively low fees compared with actively-managed mutual funds. However, they also offer other advantages such the ability to trade them on an exchange, with prices made by market makers who also provide liquidity during periods of market volatility.
In particular, ETFs offer investors diversification. An ETF can be structured to track almost any asset class, whether stocks, bonds or commodities, linked to an index or a basket of securities, as we discuss in the recent FSA supplement on “The Rise of ETFs”.
A powerful, recent trend among several product providers is to devise ETFs tied to a specific theme. Technology-focused ETFs, with sub-themes such as electric vehicles or biomedicine, have gained popularity, as have ESG or climate change-related products and country-focused ETFs, with discrete China funds attracting strong inflows.
Traditionally, Asian investors have invested in US- or Europe-listed ETFs because of their bigger size and greater liquidity, but that bias is changing.
Last year, Asia Pacific saw 284 ETF launches, more than the combined total of the US (125) and Europe (59), according to data from ETFGI. China dominated in terms of the number of ETFs launched and assets raised, but other markets, including Hong Kong and Singapore also enjoyed a significant increase in ETF assets and trading volume last year.
The momentum has continued this year. The total number of ETFs in China stands at 583 and with assets of $170bn, compared with $30bn five years ago. ETFs listed in Hong Kong, Singapore, as well as Taiwan and South Korea also continue to enjoy inflows as investors choose products invested in Asia Pacific assets that are listed in the region.
