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Greenwich Associates study: Asian Institutions apply ETFs to expanding range of portfolio functions

BlackRock |May 02, 2018
  • 54% of study participants are using ETFs for international diversification
  • 44% of Asian institutions use fixed-income ETFs
  • Study participants have tripled their use of ETFs in multi-asset funds over the last three years
  •  45% of study participants currently investing in ETFs expect to increase allocations this year


May 2, 2018, Hong Kong and Singapore –  Adoption rate of exchange-traded funds (ETFs) in Asia continues to rise, rising interest rates and a growing recognition of the versatility of ETFs, according to the third annual Greenwich Associates Asian Exchange-Traded Funds Study, commissioned by BlackRock. The study shows significant growth across fixed-income ETFs and the broadening usage and applications of ETFs within investors’ portfolios for international diversification, fixed income and as portfolio building blocks within multi-asset funds. The report, entitled, “ETFs: Versatile Vehicles for Asian Institutions” shows that 45% of study participants currently investing in ETFs expect to increase allocations in the coming year. A quarter of all ETF nonusers in the study say they are likely to start investing in the funds in the next 12 months.

Geir Espeskog, Head of iShares Distribution for Asia-Pacific, said:

“The continued surge in the usage of fixed-income ETFs, investors’ demand for international diversification and utilization of ETFs within multi-asset funds fueled the expansion of ETFs across Asian institutional portfolios last year. Asian institutions are stepping up their usage of ETFs across multiple applications, demonstrating the versatility of ETFs. They are now an established part of Asian institutions’ investment toolkits, as their liquidity and efficiency gains popularity. We expect continued adoption of ETFs in Asia as institutions become more familiar with their benefits.”

The rise of fixed income ETFs

The surge in usage of fixed-income ETFs has emerged as one of the most powerful drivers of ETF growth in the region. In terms of adoption, the share of Asian institutions using fixed-income ETFs jumped to 44% in 2017 from 32% just two years ago. Among institutions that invest in the funds, ETFs now make up 17.1% of their fixed income assets, up from just 6.6% in 2016 as liquidity benefits of the instrument over the underlying bonds become apparent.

Asian institutions say they are drawn to fixed-income ETFs first and foremost because they are simple and fast to employ. Investors cite “easy to use” (69%), “quick access” (62%) and “low management fees” (54%) as their top reasons for investing in bond ETFs with liquidity being another important feature (46%). Specifically, the shift to a rising and more varied interest rate environment is cited as another important driver for increasing allocations to fixed-income ETFs.

In terms of exposures accessed through fixed income ETFs, Asian institutions have strong preferences for international bonds, including government (32%) and investment grade (29%), illustrating the capabilities of ETFs to reduce in-house investment resource.

Operational ease of international diversification

Asian institutions’ need for international exposures to diversify investment portfolios is emerging as one of the biggest sources of ETF demand in the region. Over half (54%) of Asian institutions reported using ETFs for international diversification making it the prime reason for using ETFs among Asian institutions. One Philippine asset management company commented that “using ETFs allows us to access international markets to have a globally invested portfolio at minimal operational cost and with little infrastructure”.

ETFs gaining more prominence within multi-asset portfolios

One of the best examples of how institutional investors use ETFs in active strategies can be found in multiasset funds, where they are used as basic building blocks for the strategies. 44% of the surveyed asset managers running multi-asset funds have been incorporating ETFs. Together with the fact that such Asian asset managers are allocating relatively small shares of total assets to ETFs with the median being 15% of total funds – a share that has tripled from just 5% in 2015, multi-asset funds have tremendous potential to generate strong levels of ETF demand going forward.

Institutional investors’ continuous introduction of ETFs to an expanding number of portfolio functions has been a common theme in the findings. Over the past 12 months, growing numbers of Asian institutions have introduced ETFs into key strategic portfolio functions. The share of study participants using ETFs in liquidity management nearly doubled to 40%, and the share using ETFs for rebalancing increased to 46% in 2017 from 18% the prior year.

About Greenwich report: “ETFs: Versatile Vehicles for Asian Institutions”, Q1 2018

The Greenwich report surveyed 50 Asian institutions from Japan, Hong Kong, South Korea, Singapore, Taiwan and South East Asia. The institutions were comprised of institutional funds (44%), asset managers (28%) and insurers (28%). Almost half of the institutions in the study have AUM of US $5 billion or more, and about a quarter manage more than US $20 billion.

About iShares

iShares® is a global leader in exchange-traded funds (ETFs), with more than a decade of expertise and commitment to individual and institutional investors of all sizes. With over 800 funds globally across multiple asset classes and strategies and more than US $1.7 trillion in assets under management as of March 31, 2018, iShares helps clients around the world build the core of their portfolios, meet specific investment goals and implement market views. iShares funds are powered by the expert portfolio and risk management of BlackRock, trusted to manage more money than any other investment firm1.


For BlackRock
Anthony Arthur
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Angus Chow
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 1 Based on US $6.317 trillion in AUM as of 3/31/18

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