Investments

Report: Asian investors take to passive funds

Passive equity funds are growing faster in Asia than in the US and Europe.

Passive equity funds continued to grow faster than their active counterparts across the board, but it is in Asia that they have seen the most dramatic growth, according to a new report.

The report, by investment research firm Morningstar, found that passive equity funds are growing faster in Asia than in the US and Europe. 

In mid-2010, passive equity funds in Asia claimed just 17.5% of total fund assets, less than the 19.5% in Europe and 26.3% in the US. 

However, investors have embraced passive funds at a higher rate ever since, according to the report. In 2017, market share for passive equity funds in Asia eclipsed the US at 47.6%. 

Nearly 45% of US equity assets are now in passive vehicles and one-third of equity assets in Europe are in passive funds, the report found.

Morningstar, however, noted that some of this growth was fueled by the Japanese central bank buying local exchange-traded products. 

At the same time, the report also found that Asian investors are less enthusiastic for passive fixed-income funds, where market share is just 9.5%, falling from a peak of 11.3% in June 2016.

In terms of flows, investors preferred passive equity vehicles across regions, with cross-border flows a slight exception. 

Investors in the US poured USD470 billion into passive equity funds, while they pulled about USD175 billion from actively managed equity funds, making it the only major region with active outflows.

The story was similar in Asia, the report said, where passive equity products welcomed USD58 billion in inflows versus USD14 billion for such active vehicles.