Asian institutions join the global swing for active ETFs

Featured Sponsor

Store	Link	Sample Product
UK Artful Impressions	Premiere Etsy Store

Actively managed exchange-traded funds are gaining traction this year, with institutional investors in the Asia-Pacific region increasingly eager to invest in these products.

This comes after net inflows into all types of ETFs globally fell to $782 billion in 2022 from $1.2 trillion in 2021, according to a new poll from Trackinsight, a financial technology and data provider.

But appetite for active ETFs has rebounded as investors choose alternative products to replace direct investments, index mutual funds and active mutual funds, according to the 2023 Trackinsight Global ETF Survey.

Sean Cunningham, distribution manager for Apac ETFs at Hong Kong-based JPMorgan Asset Management, said investors in Apac and elsewhere they were turning to active ETFs for better returns, greater diversification, and higher liquidity for relatively low transaction costs.

A significant 30% of year-to-date flows in the global ETF space have been to active strategies, Cunningham said, adding that this was achieved despite the relatively small percentage of active ETFs available in the market – only about 5%. of the capital base is classified as such.

There has been an “explosion of activity” in JPMAM’s two largest active ETFs, the $25.2 billion JPMorgan Equity Premium Income ETF and the $24.7 billion JPMorgan Ultra-Short Income ETF, due to flows of US investors and institutional investors into APAC, he added.

The JPMorgan Equity Premium Income ETF returned 4.11% year-to-date in net asset value and 5.79% over the past 12 months, while the JPMorgan Ultra-Short Income ETF returned 1.49% this year. year and 3.02% in the last 12 months.

“From what I know of Asia, in the 10 years I’ve worked here, it’s a very alpha-driven market. So, in my opinion, active ETFs suit the Asian market as much as any other market globally,” Cunningham said.

In the Americas, according to the 2023 Trackinsight Global ETF Survey, 80% of respondents say they would prefer to invest in an active strategy if it were packaged as an ETF rather than a mutual fund.

Previously, many investors viewed active ETFs as “high-octane” with a high tracking error due to the limited number of stocks in the portfolio, but that mindset is starting to change, Cunningham said. Investors see the products’ strategy not to massively overweight a sector or region, just to make “incremental adjustments here and there in line with research.”

“So you can add some edge to wallets without necessarily taking too much risk.”

Lower total expense ratios and management fees for active ETFs compared to other active products are also a driving force.

“There’s just more certainty in an ETF as you know exactly what your management fee will be throughout the year.”

Especially for Apac investors, the possibility of intraday trading is one of the vehicle’s biggest selling factors.

“Asian clients can trade in Asian hours when the underlying market is not necessarily open. . . You are able to get a price and increase or decrease risk in eight hours before the underlying market has even started trading.”

The increased number of ETFs, as well as the liquidity and spread compression offered by active ETFs, also help attract more investors and higher flows to these products.

“I think clients need that extra liquidity when the markets start to get a little choppy. And we have definitely seen choppy markets over the past 24 months.”

These observations are supported by other findings from data provider Trackinsight’s 2023 Global ETF Survey, which highlights growing investor interest in all types of ETFs, despite a slowdown in net inflows last year.

A significant proportion of global survey respondents expect to increase their exposure to equity and fixed income strategies this year, to 56% and 40% respectively.