Japan driving growth of strategic beta in Asia
Within the passive fund management sphere, smart beta is gaining traction, as institutional investors seek new sources of incremental return. Growth of assets globally in strategic-beta exchange-traded products (ETPs) is strong in Asia, driven above all by Japan, according to a new report from research firm Morningstar.
Strategic-beta ETPs are passively managed investment products that make active bets against broad market-capitalisation indices. As such, investors need to conduct some level of due diligence, which is why these products are largely used by institutions.
Strategic-beta ETP assets in Asia Pacific swelled 48% to $10.5 billion from $7.1 billion in the year to June 30 (see table below). Japan accounts for 69% of the regional total and saw its assets grow by 71% in the same period. That said, this was a big slowdown from the 318% increase in the year-earlier period.
New Zealand and South Korea also saw respectable growth in locally domiciled strategic-beta ETPs, with assets expanding 89% and 35%, respectively. Strategic-beta ETP assets in Taiwan grew the fastest (90%), though admittedly that was down to just one product.
| Strategic-beta ETP markets in Asia Pacific | ||||||||
|---|---|---|---|---|---|---|---|---|
| # of ETPs | Total AUM ($m) |
% of total AUM of strategic-beta ETPs in |
Largest ETP ($m) | Average AUM ($m) | % of total local ETP market | 2015/16 growth %: Strategic beta ETPs | 2015/16 growth %: Total ETP market | |
| Australia | 21 | 1,395 | 13.3 | 469 | 66 | 8.4 | 20.9 | 18.2 |
| China | 13 | 256 | 2.4 | 87 | 20 | 0.4 | (56.1) | 49.3 |
| Hong Kong | 15 | 218 | 2.1 | 51 | 15 | 0.7 | 7.6 | (18.9) |
| India | 4 | 6 | 0.1 | 2 | 1 | 0.2 | (2.8) | 75.9 |
| Japan | 20 | 7,275 | 69.4 | 2,411 | 364 | 5.0 | 70.6 | 22.8 |
| Malaysia | 2 | 10 | 0.1 | 5 | 5 | 1.7 | N/A | N/A |
| New Zealand | 5 | 135 | 1.3 | 42 | 27 | 12.2 | 88.5 | 181.0 |
| Singapore | 1 | 15 | 0.1 | 15 | 15 | 0.8 | (16.2) | 6.1 |
| South Korea | 47 | 880 | 8.4 | 91 | 19 | 4.2 | 34.7 | 21.5 |
| Taiwan | 1 | 290 | 2.8 | 290 | 290 | 3.4 | 90.3 | (1.0) |
| Thailand | 1 | 2 | 0 | 2 | 2 | 0.4 | (24.6) | 23.9 |
| Total/average | 130 | 10,480 | 100 | 2,411 | 126 | 3.5 | 47.5 | 20.1 |
Table source: Morningstar Direct, Morningstar Research. Data as of June 30, 2016.
Note: Excludes cross-listed ETPs, except for Australia.
The growth of strategic-beta ETPs in Asia Pacific was once again driven by strong inflows, said Morningstar. The lion’s share of net new assets (NNA) went into Japan-domiciled ETFs tracking the Nikkei Index 400.
In the 12 months to June 30, $4.2 billion of NNA went into strategic-beta ETPs (excluding those domiciled in China). AUM in strategic-beta ETPs in China shrank 56% to $256 million. The number of strategic-beta ETPs in the region grew to 130 from 98 in the same period.
The figures in Japan are skewed by the activities of the central bank, which said in July it had doubled its annual ETF-buying target to ¥6 trillion ($59 billion) from ¥3.3 trillion.
ETP asset growth in the country is therefore set to continue, said Jackie Choy, Hong Kong-based director of ETF research at Morningstar.
The new buying programme from the BoJ involves buying ETFs comprising shares in firms that invest heavily in staffing and facilities improvement. The new programme started with purchases of products that track the JPX-Nikkei Index 400.