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ETFs to become core portfolio holdings in Asia

Expert Investor

A report by the company also found that actively-managed funds could become satellite holdings.

Currently, distributors typically have a single fund list to serve the needs of their customers. But this is expected to change to two fund lists, one for passive and one for active products, the research house said.

Regulations from Europe will shape fund distribution in Asia. The UK’s Retail Distribution Review or Europe’s Markets in Financial Instruments Directive, which are aimed at promoting transparency and fairness in the investment industry, are expected to be adopted in Asia as well.

“These regulations, which give greater clarity on products, services, and fees, will revive the age-old debate of active versus passive investing as investors gain a clear understanding of what they are paying for,” said Shu Mei Chua, Cerulli’s associate director.

Regulators in Asia have been moving in that direction the last few years. They have clamped down on mis-selling practices, strengthened product sales processes and improved transparency of sales commissions, the report noted.

At the same time, as investors become more digital savvy and discerning about investments, they will be unwilling to overpay for a passive fund “in an active disguise”, the research firm said.

“The divergence between alpha and passive investments will lead to increasing demand for low-cost, passive investments, and distributors will respond with two fund lists: an evergreen, passive product shelf, and a satellite list of actively-managed funds,” said Chua, who led the report.

The assets under management of ETFs globally are forecast to double from $2.6trn in 2014 to $5trn by 2020, with Asia offering fragmented opportunities, PwC predicted.

BMO Global Asset Management launched three Hong Kong-domiciled ETFs in November. Prior to that, Vanguard unveiled three ETFs in Hong Kong in June 2014, including the SAR’s first ETF providing investors with exposure to European equities.

Francis Nikolai Acosta

Francis is editor for Fund Selector Asia, covering the asset and wealth management industry in Asia. He joined Last Word Media in November 2016. Previously, he was a reporter at Ignites Asia, A Financial...

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