A Year Of ETF Growth In Asia
– December 22, 2011
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Assets increase, trading volumes diverge by country
While 2011 hasn’t been an easy year for anybody, it certainly hasn’t been a disaster for some Asian ETF providers. The headline numbers show that the market has grown strongly; there are now 396 ETFs and other exchange-traded products listed in the region, up from 284 this time last year, according to Deutsche Bank data.
Just over 80% of these are equity trackers and, despite the poor performance of equity markets almost everywhere, assets under management have grown respectably. Net inflows totalling US$18.5 billion, or 22% of the previous year-end assets under management (“AUM”), more than offset all the losses from investment performance. Asian ETF assets now total US$91.5 billion, up 8.7% over the year.
Current weekly turnover in the ETF secondary market is up 16% from the 2010 average, although this is largely due to increased trading in Korea and, to a lesser extent, Taiwan. While other major centres such as Hong Kong, mainland China, Japan and Singapore have mostly seen increases in AUM, turnover has fallen sharply in many cases.
The story of the year in terms of market growth has undoubtedly been Korea, whose share of regional AUM is up from 5.6% to 9.3%, while latest weekly turnover was up 711% from the 2010 average. Local retail investors are notable for a strong trading culture and enthusiasm for derivatives and leverage, so it’s no surprise that they’ve latched onto ETFs as a trading tool following the launch of leveraged and inverse funds by Samsung and other issuers.
The Samsung funds continue to top the table of most active ETFs in the region and their success has made the firm one of the best-performing large providers this year, with AUM up 68%. Smaller Korean peer Mirae has done even better, with AUM up 147%.
In terms of market development, providers of niche ETFs may be encouraged to see that some equity strategy funds – such as size, style and fundamental products – have seen large inflows relative to their starting point. And commodity funds have performed well, with AUM up 83% to US$3.4 billion, mostly due to the success of gold ETFs, which account for 90% of that.
For now, however, broad equity funds dominate and most inflows this year have been to country ETFs tracking individual developed or emerging Asian economies. Asia-Pacific developed country ETFs still account for 53% of regional ETF AUM and emerging Asia trackers for 29%, although this share is gradually falling.
Another gold fund in India
New launches were relatively quiet in the run-up to the end of the year, but a handful of products made it to market over the last month. The one new listing in India had an air of inevitability about it: newcomer IDBI Asset Management – part of India’s fourth largest bank – put out a gold ETF, joining the 11 already on the market.
Given the poor performance of the Indian stock market and the strong increase in the gold price this year, it’s no surprise that both providers and investors still favour this niche. Gold trackers account for one third of Indian ETFs by number, but about 70% of ETF assets under management.
The bank also launched an open-end feeder fund into the ETF aimed at the majority of potential investors who do not have a brokerage account. These launches have been common in 2011, with at least eight coming to market following the success of one from Reliance in March; it has seen AUM in its gold ETF rise six-fold over the past year.
BetaShares tries again with synthetics in Australia
In Australia, BetaShares launched three new synthetic ETFs, all aimed at providing currency-hedged exposure to commodities. The Agriculture ETF tracks the S&P GSCI Agriculture Enhanced Index, hedged against the AUD/USD exchange rate; this index currently allocates 38% to corn, 24% to wheat, 20% to soybeans and 18% to sugar.
The Commodities Basket ETF tracks a similarly hedged version of the S&P GSCI Light Energy Index. Despite its name, this is a broad index rather than an energy sector one. The basket is currently weighted 35% in energy, 32% in agriculture, 14% in industrials metals, 11% in livestock and 8% in precious metals.
Lastly, the Crude Oil ETF tracks the S&P GCSI Crude Oil Index, which in turn is based on the performance of West Texas Intermediate crude futures. All three funds carry an annual management charge of 0.69%.
The new funds will initially use Credit Suisse as the counterparty, with exposure fully collateralised and backed by cash held at a custodian – something that BetaShares is understandably stressing given its experience so far with marketing synthetic funds.
The firm launched Australia’s first synthetic ETFs almost exactly a year ago, tracking the resources and financials ex-REITs sectors. But it subsequently decided to convert both these products to physical replication in response to investor concerns about the security of synthetic ETFs.
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