Asia’s socially responsible investment assets in exchange-traded funds (ETFs) has doubled since 2015 to US$2 billion as of this March, driven by demand from high-net-worth individuals, according to US financial technology firm Broadridge Financial Solutions.
Australia, China and Japan are the three large markets for ETFs focused on environmental, social and governance (ESG) criteria in Asia, where there have been “signs of an acceleration in activity” in such funds over the last four years, Broadridge says in a statement on August 6.
“ESG thematic funds have fared better in [Asia Pacific] than in Europe, with demand coming from the [high-net-worth individuals] sector through private banks and family offices,” Yoon Ng, the company’s director of Asia global market intelligence, says in the statement.
According to Ms. Ng, ESG investment is increasingly seen to have potential as “a strong growth story”.
“However, different investors in different markets may demand different types of ESG products, from green bonds to renewable energy or a more-encompassing strategy like sustainable leaders, making it a challenge for any one fund to generate scale across the region,” she adds.
In Australia, for example, she highlights a “surge in interest” in passive ESG funds. She notes that two of the five best selling funds in Australia in the 12 months to March – Vanguard Ethically Conscious Global Aggregate Bond Index Fund and BetaShares Australian Sustainability Leaders ETF – are passive funds.
Meanwhile, overall bond funds in Asia drew $55 billion of net inflows in January through March, the most since the fourth quarter of 2016, reclaiming the pole position lost to stock funds in the last three months of 2018.
Ms. Ng says the shift back into bond funds was primarily due to profit-taking by investors following stock market gains since the beginning of 2019, and waning prospects for more US rate hikes after nine increases since 2015, including four last year.
Last week, the US Federal Reserve lowered its key overnight interest rate by 25 basis points, the first rate cut since the global financial crisis in 2008, indirectly citing the potential drag on global growth from trade tensions, including the US-China trade war.
New York-based Broadridge had $3.99 billion of total assets as at June 30, 2019.