How to accelerate the ETF market in APAC? – PwC identifies potential drivers

Global ETF AUM forecast to double to US$18tr by 2026; but APAC expected to lag N. America and Europe

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Hong Kong, 9 March 2022 – PwC Hong Kong (PwC) analysis has identified a range of factors that are acting as drivers or brakes for the growth of Exchange Traded Funds (ETFs) in the Asia-Pacific region. ETFs have proved to be competitive investment products – with low cost structures and performance that sometimes outstrips actively traded funds. Despite this, two-thirds of industry professionals surveyed by PwC expect total assets under management (AUM) in APAC to reach just US$2-2.5 trillion out of a global total of at least US$18 trillion.

These growth forecasts are included in PwC’s report ETFs 2026: The Next Big Leap – a global survey of ETF managers and sponsors, representing 80% of global ETF assets. Behind these numbers, PwC has drilled down to identify the factors that could help accelerate growth in the APAC ETF market.

Thematic ETFs, which track specific sectors such as technology, biotech and healthcare, have been the big winners in our global analysis. They have out-performed ETFs tracking a single geography or industry segment,” says Keith Chau, Asset and Wealth Management partner, PwC Hong Kong. “This highlights the importance of product development: fund managers need to predict areas of future demand and generate noise in the market to drive that demand. For example, commodity-based ETFs might be in demand at a time of geo-political uncertainty.” 

Of all investment themes, Environmental, Social and Governance (ESG) is clearly the most dominant. Over 60% of our survey respondents in Asia Pacific expect to launch ESG-focused products in the next 12 months. This is proving popular in terms of attracting new clients in the region, but APAC still lags behind Europe by a couple of years in terms of demand. Over 90% of survey respondents in Europe expect to launch ESG-focused products over the same timeframe. One challenge for fund managers is to identify suitable constituent stocks for an ESG-themed ETF. Apart from each stock having sufficient liquidity, there must be enough data available to support ESG claims in order to develop a credible product and avoid any accusations of greenwashing.

Perhaps the most important component in order to drive investment in ETFs is distribution. In Hong Kong, retail banks have been the major force in the sale of mutual fund products, with a distribution network centred on a commission-based model. This may not be favourable for ETF products, so ETF providers may look to other channels, such as private banks and wealth managers, which are a significant source of demand for ETF flows in the US and Europe. Hong Kong has yet to go down this route, but it is potentially an effective distribution channel for ETF providers. The new generation of investors are also far more comfortable with technology platforms; such platforms could be a game-changer for distribution of ETFs in the near future.

The final element to boost adoption of ETFs is investor education. The goal of investor education is usually to convey concepts such as a balanced portfolio, how much money is needed for retirement, or the cash flow characteristics of a particular product. In the case of ETFs there is a more pressing need to develop overall awareness of these products. While word-of-mouth recommendations can help promote interest, a concerted campaign of investor education would grow the market for ETFs across APAC. This would result in ever more competitive products that can address a wider range of investor preferences.

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Peter Craughwell

Senior Manager, PwC Hong Kong

Tel: +[852] 2289 8696

Mavis Fan

Senior Marketing Consultant, PwC Hong Kong

Tel: +[852] 2289 8497

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