As ETFs rise in popularity, individuals take charge while issuers race to meet demand

Transparency and ease of trading have made ETFs the new darlings of investors, with a record US$118 billion flowing into such funds in Asia this year

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Published: 10:00am, 13 Jul 2024Updated: 11:10am, 13 Jul 2024

Captivated by the spectacular rally in global markets this year, Fredric Luk embarked on his investment journey with high hopes, handpicking a few promising stocks.

But after being burned by some ill-fated bets, he quickly sold his entire equity holdings in US tech firms and funnelled his investments into a handful of exchange-traded funds (ETFs).

“Buying individual stocks comes with quite a few risks, especially when you’re not exactly familiar with the market, plus there’s a time difference [in the trading hours of different markets],” said Luk, 25, a consulting professional in Hong Kong. “It makes more sense for me to get broad market exposure.”

Luk is part of a growing tribe of investors in Asia piling into ETFs. These low-cost, diversified and transparent instruments are increasingly becoming the go-to choice for both retail and institutional investors, with the region seeing the fastest growth in the world.

The total assets of ETFs in Asia-Pacific, excluding Japan, have grown nearly 15 per cent to a record US$890 billion in the first five months of the year, in addition to the 36 per cent growth in 2023, according to ETFGI, an independent research and consulting firm. Net inflows of US$118 billion during this period are the highest ever for the region, marking an unprecedented 35 consecutive months of inflows.

Including Japan, Asia’s ETF market now exceeds US$1.3 trillion and is on track to double in size, reaching at least US$2.5 trillion by 2028, according to a recent PwC report. That means it could become the world’s second-largest ETF market after the US, and the strongest demand is expected to come from retail investors, the report added.

“In a market where investors are young, sophisticated and doing more of their own homework on what they buy, ETFs have become popular,” said Eugenie Shen, managing director and head of asset management at the Asia Securities Industry and Financial Markets Association (ASIFMA).