00:07Welcome back. You're watching ETF IQ Asia, our special weekly segment that dives deeper into
00:12the industry. We're going to start with a quick update, of course, on how flows are doing the
00:15first quarter. Of course, a big theme with us this week as have markets really moved on from
00:19the situation in Iran. Let's bring in our ETF analyst, Rebecca Sinn, from Bloomberg Intelligence.
00:24So help us track us what's going on right now in the ETF world.
00:26So the flows have moved on, which is positive. If we look across the flows for the first quarter,
00:31it's really been a theme of AI, tech, and chips. If we look across the board for the top five
00:36names
00:36that have seen the most inflow, the first one is Uanta P shares. It is the second largest holder
00:42of TSMC with a 63% holdings. And so, of course, that has done phenomenally well. It's the number
00:48one inflows across Asia Pacific with 6.3 billion, but it's also made the board across globally for
00:54number 12 ranked ETF. It's very, very rare that we get Asia Pacific on the leaderboards globally.
01:00But the next name after that is a China grid. And as you may know, China is the largest supplier
01:08of power grids globally. The government just poured in 4 trillion RMB into this sector. And so we're
01:15seeing a lot of growth. And across ETFs, those funds have really performed 30 to 50% year-to-date.
01:19Second, the third one is then Samsung. This is also a tech play. It's 30% biotech and pharma,
01:2420% semiconductors. So we're really starting to see a lot of the AI and themes name. Fourth one is
01:30CSOP, Hang Sank Tech, no surprise there. But the last one is really fixed income. And as we look
01:35across the first quarter, we're really seeing investors starting to shift away from these AI
01:40and tech names. And really that's because tech names have primarily recovered with the positive in
01:45the war potentially ending. So we're seeing a shift now into the bonds.
01:50And let's hope that continues.
01:51Into bonds.
01:52Yeah, yeah. Oh, there we go. So where are we in as far as some of the end of the
01:56key one data is
01:56concerned, right? In terms of, this is how, this is the state of play across markets. Market share,
02:00by the way, which is divvied up based on AUM, as it comes from Japan into mainland China and of
02:06course
02:06some of the other markets there. Taiwan, Korea, and why don't we talk about Australia? Rebecca staying with
02:11us here, of course, on set. Joining us here to discuss really what that market looks like in
02:16AUZ, Alex, Vinacor, founder and CEO at BetaShares, an Australian ETF-focused asset manager. He's here
02:23for the sevens, but he's also here to see us. Very nice to see you.
02:26Great to be with you.
02:27I know fixed income is perhaps having its time in the spotlight in AUZ, and I think we'll get to
02:32that
02:32in a moment. But tell us about what's happening in your market and as far as flows are concerned,
02:36given the last, what, let's call it seven weeks. Absolutely. Look, the ETF story globally is
02:43continuing to evolve. The volumes and the inflows into the ETF industry in Australia very much mirror
02:51what you're seeing in the rest of the world. The volumes are up. The inflows are very strong.
02:58The month of March, which of course has been a very volatile month for the markets, has seen the
03:05third largest net inflows in Australia on record for the ETF industry. So Australian, you know,
03:13sort of investors and Asian investors and global investors are utilising ETFs more and more to
03:18either manage risk or to take risk, basically, in areas that are finding of relevance. What we're
03:25seeing in Australia is very strong interest, wouldn't surprise you, in oil. You know, the volume
03:30in the crude oil ETFs have significantly increased in March. People were, again, either taking risk or
03:37hedging risk using that ETF. But Australian and global equities are continuing to dominate,
03:46you know, the flows, basically. And we're seeing interest both from domestic investors. But as I
03:51mentioned, increasingly, we're seeing interest from Asian and global investors more broadly,
03:57because in the sea of volatility, Australia has been a relative island of calm.
04:03Island of calm, the characteristics of this ETF market seem to be the most similar, I would say,
04:08to the US. Why do you think that is? What's driving this shit?
04:11That's a really good point. There's a very strong retail participation. That's number one.
04:16Australia has a very significant retail market. And the one little tidbit of information on Australia,
04:21even though we are a small nation in terms of our population of 27 million people, Australia is on
04:28track by 2030 to become the second largest market in the world for retirement savings just behind
04:36the US. That is all due to our compulsory retirement savings system, which in Australia we call
04:42superannuation. That industry is compounding at a very significant rate of growth. And as I mentioned,
04:48by 2030 is on track to become the second largest in the world. So back to your question, we have
04:54a
04:54very strong retail participation in Australia. I mean, Bittershares itself has more than 1 million
05:00retail self-directed investors. In addition to that, we have a financial advisor community,
05:08which is predominantly independent. And independent financial advisors, not too different to what
05:13we're seeing in the US with RIAs, are significant adopters of ETFs. So when I started the company now
05:1915 years ago, we hardly had any financial advisors utilizing ETFs. Today in Australia, over two thirds of
05:26all financial advisors are utilizing ETFs. And their propensity to allocate capital to ETFs is actually
05:33increasing over time. And the reinvestment rate is over 85%. The vast majority of investors have a great
05:41experience investing in ETFs. And this is not just Bittershares ETFs, of course, this is the ecosystem that
05:46I'm talking about. So we have a thriving market, which is growing at a compound annual growth rate
05:52of 42% per annum over the past 15 years. So if we look across Asia Pacific, you mentioned you
05:59guys are
05:59the second largest users of ETFs after the US. If you look across Asia Pacific, we don't see that
06:04replication. Taiwan has a 73% retail adoption of ETF. But why do you think that is? And why do
06:10you think the rest of the
06:11market hasn't adopted what Australia and the US has done in terms of your superannuations and
06:16your advisors and your independent advisors? Yeah, look, it's a great question, Rebecca. So there
06:20are a couple of things here. You know, number one, Australia, Australians need to invest globally
06:26in order to invest well. You know, opportunities, you know, sort of growth opportunities of the future
06:33are really around the world. Australia is a phenomenal market. I'm, of course, a very proud Australian.
06:39But, you know, we represent a very small percentage of the global opportunity set. ETFs really are the
06:47easiest, the most convenient way for Australian investors to tap global opportunities, whether it's
06:54global cybersecurity, global artificial intelligence, you know, you name it, right? There's so many
06:58incredible opportunities everywhere. So ETFs becomes the vehicle of choice for retail investors.
07:03For advisors, for advisors, importantly, Australia, over a decade ago, has gone through a period of
07:09reform, where remuneration for recommending investment products has been has been changed. And
07:17advisors are not receiving any commission, or any other form of remuneration from product issuers. So
07:25as soon as ETFs were allowed in Australia to compete on the level playing field against other forms of
07:32investments, that's really supercharged the growth in the ETF industry. And that really mirrors what
07:37you've seen in the market like the US. When when conflicted remuneration and commissions are removed
07:44from the equation, ETFs really come into their own, they compete really well on a level playing field.
07:49So domestically, what is becoming what is more popular domestic exposed wrappers? Or is it one where
07:58Australians get an exposure to outside? And how does that affect your strategy in terms of your pipeline?
08:02Well, look, I mean, we've had we've had a
08:04really busy 15 years continuing to evolve our suite of products. Australia, like every market,
08:11is not a homogenous market. Some people invest in very much core building blocks. And a number of
08:18investors are investing more thematically, in addition to investing to building a diversified,
08:23cost effective core portfolio. So the vast majority of flows in Australia from Australian investors
08:29are really going into global exposures. And what we're seeing also is a very significant
08:36growth in adoption of fixed income. So in the fixed income category, ETFs really come into their own.
08:43Bonds are very hard to access for retail investors. The minimum denominations are still very high.
08:48The ability to get diversification, to get quality execution through the ETF vehicle,
08:53is really very compelling for advisors, for the retail investors. And increasingly,
08:59we're seeing it for institutional investors, in particular from outside of Australia.
09:04So active ETFs have been around in Australia for the longest. Why hasn't it picked up?
09:08Look, my view on active is that ultimately, the ETF wrapper is not the panacea against poor performance.
09:17If your performance is great, ETF wrapper can enhance your distribution capability.
09:24It modernizes your access to the market. But at the end of the day, investors who invest with active
09:31managers, and we have a number of active strategies at BetaShares, we've partnered with active managers to
09:37bring to market. At the end of the day, investors expect performance from active managers. And ETF investors,
09:43in particular, are very familiar with the alternative of investing in an active strategy, which is to
09:50invest in an index. So when an active manager under delivers, basically, the alternative is very much
09:58available and is very much there. So what we're seeing in Australia is a real proliferation of active
10:06product. However, if you look at where the flows are going, the vast majority of flows are still going into
10:13index products. And the statistics in Australia, if you look at the S&P Spivo reports, really mirror the
10:19rest of the world, where 75, 80% of active managers in any given period tend to underperform net of
10:26fees. Alex, it's great to have you in town here. And of course, enjoy the weekend here in Hong Kong.
10:29Thank you. Great to be with you.
10:30Founder and CEO at BetaShares. And of course, our thanks to Rebecca Sin, Bloomberg Intelligence ETF
10:36analyst. Of course, you can tune in to the ETF IQ Asia every Friday right here on The China Show,
10:41where we're bringing you more analysis and conversations with top market players
10:44and newsmakers. This is Bloomberg.
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