As illustrated in the chart, actively managed fixed income strategies have tradionally outperformed passive ones over the long term. In managing a typical fixed income portfolio, investors have to balance a range of risk factors, such as interest rate sensitivity, credit risks, liquidity risks, market inefficiencies, and potential concentration risks in the most heavily indebted issuers.

While both active and passive strategies face the same set of challenges, active managers can navigate these factors more effectively. Indeed, about 80% of core and core plus managers, who have the flexibility to invest in credit, securitised paper, and non-currency exposures, have outperformed the Bloomberg US Aggregate Index over the past five years².

While ETFs have logged 15 years of growth¹, the Asia Pacific region has emerged as a new engine driving this expansion.  As of end of January the region listed over 3,500 ETFs¹, accounting for almost US$2T in assets³. Assets under management (AUM) has doubled in the last three years with some markets such as China and Taiwan driving the growth³.

A standout in 2024 was the growth of China’s ETF market – the world’s second largest economy⁴ and capital market⁵. China added US$88.6B in net new ETF assets during the past 12 months, achieving the fastest growth in the Asia-Pacific region³. This surge enabled China to surpass Japan and become the largest ETF market by assets in the region³. As of Jan. 31, ETF AUM in China reached US$615B³.

This has been driven by several factors, namely the introduction of new products, the increased adoption of ETFs by institutions, and the drive for diversification in investment options among retail investors. As it stands, China's ETF AUM trails only that of the US – the world's largest ETF market – and Ireland-domiciled ETFs³.

Active ETFs have become a US$1.2T+ asset class, capturing a fifth of all ETF flows in past 12 months¹.  Over the last decade, active ETFs have achieved a 44% compounded annual growth rate, more than double the 19% increase of the broader ETF market, albeit from a smaller base¹. As of end of January, active ETFs comprised 27% of all available ETFs, up from 9% from 2018¹.

This growth has been driven by regulatory changes in the US and other global markets, along with investor demand for transparent, lower-fee products that provide potentially stronger performance, reduced volatility, and income.

While the US leads in active ETF adoption, the Asia-Pacific region is catching up. Markets like Australia, South Korea, and Hong Kong already support active ETFs, with Japan joining in 2023, Singapore in 2024, and Taiwan expected to carry such products in 2025. Meanwhile, China permits enhanced index ETFs with specific conditions. 

ETFs are largely known to be transparent, accessible, and cost efficient. A lesser known feature is liquidity. ETFs have, time and again, demonstrated the ability to provide liquidity to the market during times of volatility or market stress. During such times, ETF units have exhibited greater liquidity than the underlying holdings supporting the market and investors¹. This was apparent during the Global Financial Crisis, the Federal Reserve taper tantrum episode and the Covid-19 pandemic¹.

Moreover, ETFs have the ability to absorb large trades. They can absorb large dollar amounts without moving markets when the underlying securities are leveraged to provide liquidity.

Such liquidity is supported by a unique creation and redemption process. This process involves authorised participants (APs), which are typically large institutional investors or market makers that facilitate the buying and selling of ETF shares on the secondary market. They play a crucial role in maintaining the efficiency and liquidity of ETFs.