Asia Pacific’s ETF industry has seen record growth in recent years and is emerging as a hotbed of innovation, according to a report by Cerulli Associates.
Soo Ah Ran Cho, Associate Director, Asia, at Cerulli Associates.
ETF assets under management in the region, excluding Japan, have surged by 217.6% over the past five years to reach $422.3 billion at the end of 2021, representing an impressive compound annual growth rate (CAGR) of 33.5%.
ETFs targeting disruptive technologies have driven the bulk of inflows over this period with internet and digital infrastructure being notably popular in China while semiconductors, batteries, and the metaverse have garnered significant interest in Korea and Taiwan.
Cerulli notes that ESG-focused and new energy themes are also becoming increasingly in vogue across the entire Asia Pacific region.
Cerulli’s research further found that a huge proportion of asset managers are showing enthusiasm for the ETF industry with 83% of those surveyed in China, 67% of those in Korea, and 60% in India indicating they either already offer ETFs or are in the process of developing their own ETF products.
With competition rapidly increasing, pressure to cut fees is also intensifying as asset managers prioritize gaining market share despite the possibility of lower profits. Cerulli believes this trend will ultimately result in greater consolidation among the top ETF players as small and mid-sized providers are pushed out, potentially leaving end clients with fewer product alternatives.
In Korea, for example, Cerulli notes that the US ETF segment is gradually heading for oligopoly with the dominance of Samsung Asset Management and Mirae Asset Global Investments leaving little room for new entrants with products based on the same indices. Similar fee compression trends are also in play elsewhere in established ETF segments such as mainstream Korean (products tracking the KOSPI 100), Chinese (CSI 300), and Hong Kong (Hang Seng) equities.
Soo Ah Ran Cho, Associate Director, Asia, at Cerulli Associates, commented: “Continuing fee compression, especially in the more established areas where only the biggest players that are able to offer the lowest fees can survive, makes product innovation essential to establish competitive advantages in niche or untapped areas. These include offering access to megatrend themes such as disruptive technology and sustainable investing which are sought by retail investors. Managers are keen to develop ETF products, and this will help expand the size of the region’s market and the opportunities within.”