Wednesday, May 2, 2018 Stamford, CT USA — Investment in ETFs surged last year in Asian institutional fixed-income portfolios, where allocations to ETFs grew to 17.1% of total fixed-income assets, from just 6.6% in 2016. This increase is part of a broader expansion in ETF use by Asian institutions, which are using the versatility of ETFs to apply them to a growing list of asset classes and portfolio applications.

The Greenwich Associates 2017 Asian ETF Study finds that Asian institutions are integrating ETFs into their portfolios as a standard tool for obtaining beta exposures in their allocations in both active and passive strategies. This steady expansion into new applications is stoking demand. In both equities and fixed income, 45% of study participants currently investing in ETFs expect to increase allocations to the funds in the coming year. Meanwhile, fully one-quarter of all ETF non-users say they are likely to start investing in the funds in the next 12 months.

“With market volatility on the upswing and interest rates in key markets around the world expected to climb, Greenwich Associates expects this growth in ETF use and allocation to continue over a longer-term horizon,” says Andrew McCollum, Greenwich Associates consultant and author of the report ETFs: Versatile Vehicles for Asian Institutions.

Drivers of Growth

The recent growth in fixed-income ETF allocations has occurred at the expense of individual bonds, which made up 58.6% of fixed-income assets among study participants in 2016 but only about 50% in 2017. Across all asset classes, institutions are turning to ETFs for a diverse range of investment exposures, including:

  • International Exposures: Among study participants, 54% are using ETFs for international diversification, up sharply from about one-third in 2016.
  • Multi-Asset Exposure: Over the last three years, study participants have tripled their use of ETFs in multi-asset funds. The median allocation has grown from just 5% in 2015 to 15% in 2017.
  • Factor Exposures: Nearly half (47%) of study participants now invest in non-market-cap-weighted ETFs, up from 44% in 2016.

“The fundamental reason that Asian institutions are stepping up their use of ETFs is that, within the context of an institutional portfolio, ETFs have proven to be extremely versatile tools,” says Andrew McCollum. “Our research suggests institutions in Asia and around the world will continue applying ETFs to an expanding list of portfolio functions, both strategic and tactical, leading to continued growth in demand and investment.”