APAC ESG ETFs see assets double to US$2 billion from 2015
Region is experiencing encouraging growth in ESG funds, especially in Australia, China and Japan, while Q1 sees strongest regional bond net flows since Q4 in 2016
Demand from domestic investors is pushing growth of exchange traded funds (ETFs) in the still nascent environmental, social and governance (ESG) investment space of Asia’s fund management industry, according to a new report released by Broadridge Financial Solutions, Inc., a global fintech firm and part of the S&P 500® Index.
The report found there are signs of growing acceptance across the industry, led by institutions. Elsewhere, easing interest rate-hike expectations reignited interest in fixed income strategies during the first quarter of 2019.
• ESG ETFs see strong growth in Asia, with assets doubling since 2015 to US$2 billion.
• Two out of the top five bestselling funds in the 12 months to end-March are passive ESG strategies.
• Q1 2019 saw the strongest bond net flows in the region since the final quarter of 2016.
• Domestic players grabbed 80% of the pie, leaving cross-border groups with a still respectable US$11 billion in net flows.
• China drove the bulk of the bond sales as investors parked US$34 billion in domestic CNY bond products in Q1 2019.
While the ESG fund space in Asia as a whole is still in the early stages of acceptance and development, there are signs of an acceleration in activity. In particular, ESG funds in the ETF space are seeing strong growth, almost doubling assets since 2015 to US$2 billion as of the end of March. The region’s biggest such ETF is domiciled in Japan – Daiwa ETF MSCI JP Human & Physical Investment Index – with US$488 million in AUM as of the end of March.
Australia, which is at the forefront of ESG adoption in the region, is also seeing a surge in interest in passive ESG funds, says Yoon Ng, Broadridge’s director Asia Global Market Intelligence. Two out of the top five bestselling funds in the 12 months to the end of March are passively managed. They are Vanguard Ethically Conscious Global Aggregate Bond Index Fund and BetaShares Australian Sustainability Leaders ETF.
Overall, Broadridge data shows that AUM of responsible investing (RI) funds in Asia, which include ESG ETFs, is largely concentrated in three markets, namely Australia (US$9.9 billion), China (US$5.7 billion) and Japan (US$4.7 billion). Australia and China saw net inflows in the 12 months to the end of March 2019 of US$3.1 billion and US$4.6 billion, respectively. However, the RI space in Japan saw net outflows of close to US$1 billion during the period.
ESG investment is increasingly thought to have potential as a strong growth story. “ESG thematic funds have fared better in APAC than in Europe, with demand coming from the HNWI sector through private banks and family offices. However, different investors in different markets may demand different types of ESG products, from green bonds to renewable energy or a more all-encompassing strategy like sustainable leaders, making it a challenge for any one fund to generate scale across the region,” says Ng.
Meanwhile, the theme of “back to fixed income” is omnipresent too. Fixed income strategies reclaimed pole position for net flows at the end of the first quarter of 2019 after being overtaken by equities in the previous quarter. Ng notes that, with the prospect of further interest-rate hikes petering out and investors taking profit from recent equity gains, bonds global currency, bonds USD and bonds emerging markets were the winners in the first quarter.
In fact, sales headlines for the quarter were dominated by investor appetite for bond funds. In all, the asset class drew in US$55 billion of flows, building on the rotation back into fixed income that began in the fourth quarter of 2018. It yielded the strongest flows into this space in the region since the final quarter of 2016.
Broadridge data also shows that there were rich pickings in the fixed income space for both local and cross-border managers. While domestic players grabbed 80% of the pie, the 20% taken by cross-border groups still equated to a respectable US$11 billion. The Greater China region was the primary source of interest in bonds during the quarter.
China itself was foremost by dint of the fund market’s sheer size, with investors there parking US$34 billion in domestic CNY bond products, adds Ng.
Social Media Links (This section can be seen in office only):
Twitter : https://www.theasset.com/article-single.php?id=38409&social=twitter
Linkedin : https://www.theasset.com/article-single.php?id=38409&social=linkedin
Facebook : https://www.theasset.com/article-single.php?id=38409&social=facebook