2021 Greater China ETF Investor Survey

As part of our eighth annual ETF Survey, we broke out Greater China respondents to outline the emerging trends in usage, selection, and demand for exchange-traded funds in the region.

Brown Brothers Harriman (BBH) recently surveyed more than 300 institutional investors, financial advisers, and fund managers from around the world (U.S., Europe, and Greater China – including Mainland, Hong Kong, and Taiwan). This fourth annual supplemental report takes a closer look at the Greater China responses. In Greater China, the sample was 58% institutional investors, 20% financial advisers, and 22% fund managers. All respondents invest in ETFs and are aware of their institution’s overall investment strategy.

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  • 146

    respondents in Greater China,
    representing Mainland, Hong Kong, and Taiwan

  • 76% manage more than

    $100 million

    (USD) in assets

  • 56 %

    have more than 25% of their
    portfolio invested in ETFs

Key Findings

  • The pace of ETF adoption in Mainland China is ramping up. An astonishing 92% of Mainland investors expect to increase their ETF allocation in the next 12 months, an increase of 10 percentage points from 2020.
  • Thematic ETFs get the green light. There’s resounding interest across the region with 91% of Mainland investors, 86% of Hong Kong investors, and 74% of Taiwan investors looking to increase allocations to thematic ETFs this year.
  • Mainland access continues to draw interest from global investors. 86% of global investors plan to increase investment into the Mainland equity and bond markets in 2021.
  • ESG has captured the region’s attention. 92% of investors in Greater China plan to allocate more capital to ESG strategies this year. In 5 years, 53% of investors expect to have at least 11% of their portfolio in ESG ETFs.
  • There’s an appetite for fixed income ETFs: 76% of respondents plan to increase their exposure to fixed income ETFs.

Greater China ETF Marketplace

Growth in the region is closely aligned with Mainland China, which presents a significant opportunity as the onshore asset management industry continues to mature and internationalize. Known as the world’s bridge to Mainland China, Hong Kong is well positioned to capitalize on this growth, while Taiwan has been one of the fastest growing ETF markets across Asia with a high level of product innovation.

As evident in the responses, ETF adoption and usage are at varying stages across Greater China. Investors in each market also have distinct views on key criteria for selecting ETFs. In the Mainland and Taiwan, historical performance was the most important factor for ETF selection. While in Hong Kong, investors focused on trading volume, noting how historical performance impacted their product choice.

2020 was a banner year for ETFs in the region. The market now represents a $270 billion industry and is showing no signs of slowing.1 This global growth is all the more impressive considering that close to a year ago, the market experienced one of the most volatile periods in recent history as the economic impacts of the pandemic took effect. Ongoing education efforts across Greater China around the structural benefits of the ETF wrapper seem to be resonating as investors are increasingly bullish on the products. 76% of investors in the region expect to increase their allocation to ETFs in the next 12 months.

Do you expect your use of ETFs to increase, decrease, or stay the same over the next 12 months?


ETFs Mainland Hong Kong
Taiwan

 

2021

2020

2021

2020

2021

2020

Increase

92%

82%

66%

56%

58%        

 45%

Decrease

2%

 11%

12%

 29%

7%        

 15%

Stay the same

6%

 7%

22%

 15%

35%        

40%

Total

100%

100%

100%

100%

100%       

100%

When selecting ETFs, please select and rank your top three of the following in terms of importance.*


ETFs Mainland
2021
Hong Kong
2021
Taiwan
2021
ETF Issuer
6 6 6
Index Methodology
5 3 5
Expense Ratio
4 4 4
Tracking Error
8 7 8
Historical Performance
1 2 1
Trading SpreadsETFs
3 5 3
Tax Efficiency
7 8 7
Trading Volume
2 1 2


Top Three ETF
strategies
Mainland
2021
Hong Kong
2021
Taiwan
2021

Environmental, social, and governance (ESG)

1

 3

 1

Cryptocurrency

 2

 2

2

Thematic

 3

1

4

Active

4

5

3

Defined Outcome ETFs (Buffered ETFs)

5

6

5

Currency hedged

6

4

6

Market Capitalization index

7

7

7

Smart beta or Factors

8

8

9

Leveraged/Inverse

9

9

8

Thematic ETFs

Interest in thematic ETFs has grown significantly in recent years. Strong performance and widespread media attention of several prominent thematic ETFs helped fuel demand in 2020. We don’t see that interest waning, especially in Mainland China. 91% of Mainland ETF investors said they plan on increasing exposure to thematic ETFs this year. Technology-focused thematic ETFs command the most interest from ETF investors, but there were other areas worth noting, including robotics/AI and electric vehicles. Often these ETF strategies are seen as ways to tap into long-term changes in various sectors and demographics, and while they are typically very concentrated, investors appear to be using them more widely.

Given the considerable gains in the value of digital assets throughout 2020, it is not surprising that many investors are gravitating toward fintech/crypto ETFs. Advances in the digital asset ecosystem, and increasing investment in these underlying currencies by hedge funds and corporate entities, may see ETFs targeting this market as a leading edge of broader digital asset adoption.

 

Do you plan on increasing your exposure to thematic ETFs?


Increasing your exposure to thematic ETFs? Mainland
2021
Hong Kong
2021
Taiwan
2021

Yes

91%        

86%        

74%        

No

2%        

0%        

0%        

Keep the same

7%        

14%        

26%        

Total

100%

100%

100%

What type of thematic ETFs are you most interested in?


Type of Thematic ETFs
Mainland  Hong Kong Taiwan
  2021 2020 2021 2020 2021 2020
Internet/technology 42%         37% 20%         22% 19%         35%
Robotics & AI 18%         25% 18%         17% 48% 18%
Cannabis 0%         1% 0%         0% 0%         1%
Healthcare 8%         0% 10%         15% 13%         4%
FinTech / Crypto 8%         9% 16%         12% 7%         15%
Autonomous & Electric vehicles 8%         4% 32%         5% 13%         16%
Environmental, social, and governance (ESG) 16%         24% 4%         29% 0%         11%
Total       100%   100% 100% 100% 100%        100%


In five years, what percentage of your portfolio will be in thematic ETFs?


 Percentage of Portfolio

Mainland

Hong Kong

Taiwan

 

2021

2020

2021

2020

2021

2020

1-5%

0%     

-

8%        

-

16%        

-

6-10%

15%

-

33%        

-

42%        

-

11-20%

53%

-

32%        

-

23%        

-

21-50%

30%

-

27%        

-

16%        

-

Above 50%

2%  

-

0%        

-

3%        

-

Total

100%

-

100%

-

100%

-

China Cross-Border

The Mainland market was one of the top performing equity markets globally in 2020 as it rebounded from the pandemic prior to the rest of the world. Last year, investors continued their trend of increasing allocations to the Mainland equity and bond markets. 86% of global respondents planned to increase their allocations to the China equity and bond markets in 2021 and the majority expected to use ETFs to facilitate their investment. China thematic ETFs were frequently noted by the survey respondents with 50% of global investors planning to allocate to these products in 2021.

As the ETF industry awaits further clarity on the potential for ETFs to be included in the Stock Connect program, Mainland investors aren’t slowing down their interest in accessing the Hong Kong market through other available channels. If provided the future ability to buy Hong Kong listed ETFs, Mainland investors were most interested in managed risk/low volatility products as well as leveraged/inverse ETFs. Emerging market equity and short duration fixed income were the two asset classes most demanded by the respondents.

If you are going to invest in China over the next 12 months, how do you plan to do so?


How do you plan to do so? Hong Kong Taiwan US Europe
  2021 2020 2021 2020 2021 2020 2021 2020
Plan to use ETFs to invest 35%         46% 32%         45% 51% 34% 43% 36%
Plan to directly invest via inbound channels (Stock Connect, QFII, RQFII, Bond Connect, etc.) 61%         37% 58%         35% 36% 31% 37% 34%
Have no plans to add China exposure this year 4%         13% 10%         27% 13% 35% 20% 29%
Total: 100% 100% 100% 100% 100% 100% 100% 100%

What type of ETFs do you plan to purchase in the next 12 months to obtain your China exposure?


Type of ETF's
Hong Kong Taiwan U.S. Europe
  2021 2020 2021 2020 2021 2020 2021 2020
China equity (broad based index, example: CSI300, A50, etc.) 41%         47% 30%         56% 35% 30% 28% 42%
China Treasury /Policy Bank Bonds 24%         32% 30%         23% 32% 30% 30% 26%
China Short Duration Bond 53%         21% 30%         22% 29% 12% 28% 13%
China Thematic/Sector (example: technology, internet, robotics, etc.) 59%         42% 30%         26% 48% 15% 52% 35%

If allowed to invest cross border into Hong Kong listed ETFs, what type of ETFs could be in demand for your clients and your firm?


Type of ETF Mainland 2021
Hong Kong equity  33%        
Asia Pacific equity  47%        
US Equity 39%        
Emerging Market equity  61%        
Short duration fixed income 50%        
High Yield Fixed Income 44%        
Commodity 27%        
Other: (please specify) 3%        

If allowed to invest cross border into Hong Kong listed ETFs, what type of ETF strategy could be in demand for your clients and your firm?


Type of ETF Strategy Mainland 
  2021 2020
Leveraged/ Inverse 38%         4%
Environmental, social, and governance (ESG) 33%         15%
Smart beta 36%         17%
Active 36%         7%
Market capitalization weighted index 35%         0%
Thematic/sector 27%         7%
Currency hedged 29%         11%
Managed risk/low volatility 42%         22%
Cryptocurrency 24%         17%

ESG ETFs

Although ESG is clearly a growing investment theme, thematic ETF statistics do not include funds devoted to strategies that rely on environmental, social, and governance (ESG) criteria for choosing the equities, yet ESG ETFs also attracted significant new assets in 2020. Globally, a record $89 billion flowed into ESG ETFs in 2020, well above the $28 billion of flows in 20192. In Greater China, policy makers are enhacing regulations to further integrate climate related risks into fund mangers’ investment management and risk processes. Disclosures are being enhanced, which will result in more data being available.

In terms of locally listed products, there is increasing interest from issuers to bring ESG ETFs to the regional market.

While there are headwinds, the ESG segment is clearly gaining momentum, particularly in Greater China. Across all three markets, there is a pronounced uptick in interest in ESG products.  

Do you plan to increase your allocation to environmental, social, and corporate governance (ESG) investments (not limited to ESG ETFs) over the next year?


Increase Allocation? Mainland  Hong Kong Taiwan
  2021 2020 2021 2020 2021 2020
Yes 92%         82% 98% 63% 84%         80%
No 5%         10% 2%         20% 3%         10%
Not sure 3%         8% 0%         17% 13%         10%
Total 100% 100% 100% 100% 100% 100%

What is preventing you from adding ESG to your portfolio?


Plan to increase? Mainland  Hong Kong Taiwan
  2021 2020 2021 2020 2021 2020
Lack of consistent methodology and framework 19%         0%         11%         9%         0%         0%        
Lack of client interest 31%         0%         31%         45%         18%         20%        
Concerned about the performance of ESG ETFs 42%         60%         41%         36%         46%         40%        
ESG ETFs are too expensive 8%         40%         17%         11%         36%         40%        
Total 100% 100% 100% 100% 100% 100%

How do you evaluate ESG ETFs?


Evalute ESG ETFs? Mainland 2021 Hong Kong 2021 Taiwan 2021
Third party ratings 8%         18%         10%        
In-house/proprietary ESG ratings criteria 50% 27%         39%        
Review company statements / reports for underlying holdings 22%         28%         38%        
Brand recognition of ETF manager 20%         27%         13%        
Total 100% 100% 100%

In five years, what percentage of your portfolio will be ESG ETFs?


% of Portfolio
Mainland  Hong Kong Taiwan
  2021 2020 2021 2020 2021 2020
1-5% 0%      - 8%         - 16%         -
6-10% 15% - 33%         - 42%         -
11-20% 53% - 32%         - 23%         -
21-50% 30% - 27%         - 16%         -
Above 50% 2%   - 0%         - 3%         -
Total  100% - 100% - 100% -

Active & Fixed Income ETFs

Actively managed ETFs are not a new phenomenon in the global ETF market, but the concept is relatively new in Greater China. They’ve been in play for over a decade and now account for about 2.9% of global ETF market share or $303 billion in asset under management (AUM)3. What’s different now is the introduction of new structures through which active managers can deliver their investment strategies. It stands to reason that the segment will grow: Across geographies, there was a pronounced uptick in surveyed investors’ planned allocations to active ETFs.

Australian investors have been an early adopter with active ETFs accounting for 50% of net new flows in 2020, while in Hong Kong, issuers continued to add new active ETFs to their platforms. Similar to Europe and the U.S., transparency continues to be top of mind for active asset managers who are assessing these products. Finally, Defined Outcome (buffered ETFs) is an area to watch. The products surged in popularity in the U.S. in 2020 and caught the attention of managers and investors globally. These type of products will likely be a basis for additional innovation in the ETF market, especially in how active management is deployed in the ETF wrapper.  

Do you expect your exposure to actively-managed ETFs to increase, decrease, or stay the same over the next 12 months?


ETFs Mainland  Hong Kong Taiwan
  2021 2020 2021 2020 2021 2020
Increase 86% 72% 63%         52% 48%         55%
Decrease 3% 4% 6%         21% 10%         15%
Stay the Same  11% 24% 31%         27% 42%         30%
Total  100% 100% 100% 100% 100% 100%

In what asset class would you be most likely to look for in an actively-managed ETF?


Asset Class Mainland 2021  Hong Kong 2021 Taiwan 2021
Fixed income 21%         16% 26%        
Domestic equity 6%        18%     6%        
Global equity 14%         12%       26%        
Multi asset  20%         16%        16%        
Commodities 2%       9%       3%        
Alternatives 4%    5%        10%        
Currency 4%   10%         0%        
Buffered ETFs (e.g. Defined Outcome ETFs) 29% 14%         13%        
Total  100%    100% 100%        

What concerns you most when investing in active ETFs?


Concerns Mainland 2021 Hong Kong 2021 Taiwan 2021
  2021 2021 2021
Performance 15%         12%         26%        
Manager tenure/experience 26%         22%         23%        
Trading volume 26%         39%         32%        
Expense ratio 32%         27%         19%        
I don’t invest in active ETFs 2%         0%         0%        
Total  100% 100% 100%


Do you expect your exposure to fixed income ETFs to increase, decrease, or stay the same over the next 12 months?


ETFs Mainland 2021 Hong Kong 2021 Taiwan 2021
Increase 86% 73% 58%
Decrease  3% 9% 3%
Stay the Same 11% 18% 39%

What types of fixed income ETFs do you plan to add to your portfolio?


Type of EFT Mainland 2021 Hong Kong 2021 Taiwan 2021
Short duration bond ETF 35% 19% 22%
U.S. Treasury ETF  35% 47% 44%
Treasury Inflation- Protected Securities (TIPS) ETF 49% 33% 22%
Mortgage-Backed or Asset Backed Securties (MBS/ABS) ETF  37% 22% 17%
Corporate Bond- Investment Grade ETF 46% 36% 11%
Corporate Bond- “High Yield” ETF  32% 28% 22%
Municipal Bond ETF  30% 33% 22%
Sovereign Debt ETF  30% 33% 17%
Emerging Market Bond ETF  32% 25% 56%
China Treasury ETF 35% 53% 44%
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Up Next
Up Next

2021 Global ETF Investor Survey

March 08, 2021
In our eighth annual ETF Survey, we outline the emerging trends in usage, selection, and demand for exchange-traded funds.

1 Source: ETFGI, December 31, 2020
* Please note that we removed ESG factors as a response in the 2021 Survey.
2
Source: ETFGI, December 31, 2020
3
Source: ETFGI, December 31, 2020

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