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HK investors shift from active to smart beta

Nearly 40% of investors in Greater China have replaced actively-managed funds with smart beta products in the last 12 months, according to Brown Brothers Harriman (BBH) survey.

Hong Kong and Taiwan investors said smart beta is the strategy they want to see more of in the local ETF market, even though nearly 30% of the new ETF listings on the local bourse in 2017 and 2018 were smart beta products, according to a survey by BBH.

The survey included fund managers, financial advisers and institutional investors in Greater China.

Source: BBH

Around 86% of investors in Hong Kong have 6-20% of their assets invested in smart beta products, according to the survey.

In total, 97% of the respondents in Greater China have at least one smart beta ETF in their portfolio, which is higher compared to 94% in Europe and 92% in the US.

Source: BBH

The report noted that 38% of the respondents in Greater China expect to increase their exposure to smart beta products in the next year. This demand is led by investors from Taiwan and the mainland.

Source: BBH

“It appears that investors view smart beta ETFs as vehicles that could combine certain benefits of traditional active management, when compared to passive core index ETFs,” the report said.

Around 38% of Greater China investors purchased a smart beta ETF in the last 12 months to replace an actively-managed mutual fund, with Taiwan leading the way.

Source: BBH

Firms riding the trend for smart beta products include Premia Partners, which plans to launch four Asia-focused smart beta ETFs this year, after having launched four smart beta products since 2017. Ping An of China Asset Management also launched two smart beta products in Hong Kong in December.

More fixed income ETFs

In terms of asset classes, investors in the region would like to see more fixed income ETFs, especially in Hong Kong.

Source: BBH

The survey’s findings are the same as last year’s, when 65% of Hong Kong respondents said they would like to see more global fixed income ETFs and 63% wanting to see more currency-hedged products.

Out of the around 110 ETFs listed in Hong Kong, only nine of them are fixed income, with six of them focused in the China markets, according to data from the Hong Kong Exchange.

Fixed income ETFs are used by investors during periods of high volatility, the BBH survey noted. Around 59% of investors in Greater China said they will buy fixed income ETFs when markets are more volatile.

Source: BBH

Part of the Mark Allen Group.