Investment Ideas

ETFs Explained #7: Active ETF trends in APAC

ETFs Explained #7: Active ETF trends in APAC
Published: 25/10/2024

Exchange-traded funds (ETFs) have surged in popularity over the past decade1 evolving from passive only instruments to actively managed ones in recent years. While the US has led in active ETF adoption, the Asia-Pacific (APAC) region is now also embracing this trend. 

This chapter explores the regulatory landscape and investor interest in active ETFs in the APAC region.

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Investor appetite

The APAC region predominantly remains a passive ETF market, with index-based ETFs accounting for about 96%1 of the market.

Regulatory changes in the US in 20192 initiated the active ETF revolution. In the APAC region, regulators are easing rules to accommodate active ETFs, responding to rising investor demand and aiming to position their markets as attractive asset management hubs. Investors are also showing interest, with 71%3 of APAC respondents in a survey indicating they plan to increase their exposure to active ETFs.

The evolving regulatory landscape has already spurred the launch of more active ETFs in the region. Active ETFs now constitute almost 4% of total ETF AUM as of July 2024, up from 3.6% at the end of 20234. This market share compares to 8.4% in the US, up from 7.5% at the end of 20234.

Active fixed income ETFs have grown 34% in the first seven months of the year from end-of-2023 levels in APAC, followed by a 21% growth for active equity ETFs4. Total active ETF assets under management (AUM) in the region stood at US$34.1 billion as of July 2024, up from US$27.3 billion at the end of 20234.

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Advanced active ETF markets

While the investor appetite for active ETFs is rising in the region, the regulatory landscape is varied though with some markets more advanced than others.

Australia: It has the longest history of active ETFs in the region, with the first listing in 20155. Regulatory changes in March 20246 by the Australian Securities and Investments Commission extended relief previously available only to passive ETFs to actively managed ones. This eliminated the need for active ETFs to seek individual exemption on issues like continuous disclosure. The result: active ETFs made up 23 out of 32 new ASX ETF listings in the first eight months of 20247.

South Korea: The first active fixed income ETF was launched in 20178. As at the end of August 2024, there were 1959 active ETFs, almost double the number from the end of 2022.

Hong Kong: The first active ETF was listed in 2019, and by the end of 2023, there were 24 active ETFs on the city's stock exchange10. In May 2024, the Securities and Futures Commission (SFC) permitted SFC-authorised feeder ETFs11 to invest in overseas-listed master ETFs, including actively managed ones.

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Other APAC markets

Japan: In June 2023, the Tokyo Stock Exchange started accepting12 active ETF listings to diversify products and boost market competitiveness. Since September 2023, 11 active13 ETFs have been launched.

Singapore: Singapore’s first active ETF was launched in January 202414. The launch followed a practice note on the listing requirements for actively managed ETFs in December 2023.

China: Approved enhanced index ETFs for launch in 20208. The instruments are subject to certain caveats such as the non-index component of the enhanced index ETF should not exceed 20% and performance deviation from the benchmark index is generally expected to be around 6.5%15.

Taiwan: The Financial Supervisory Commission in July 202416 said it will expand the scope of ETF products from passive ETFs to active ETFs and passive multi-asset ETFs. It aims to amend the rules by December 2024.

The future of active ETFs in APAC

The APAC region is embracing the global trend of active ETFs, driven by regulatory changes and growing investor interest. As more markets in the region adjust their regulations to support these products, there is a likelihood that they can follow the same growth trajectory as the US.

J.P. Morgan Asset Management
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