JPMorgan Asset Management, its Shanghai-based joint venture, China International Fund Management, and investment platform Snowball Finance, have published a survey of the current ETF landscape in China.
The survey found that the rising awareness of fund allocation is driving the development of ETFs, making ETFs more popular among individual investors. Alongside that, the popularity of fin-tech has led to the rapid expansion of funds, prompting the rise of fund allocation awareness.
The survey also found that the indexing investment philosophy is accepted by more and more people in China and they see ETFs as another type of fund.
The survey says: “With their high liquidity (convenient trading), high transparency (transparent pricing and portfolios), low fee rates, diverse investment varieties and strategies, etc, ETFs are becoming increasingly popular among investors. Among the individual investors surveyed in this study, 42.6 per cent of investors have allocated to ETFs.”
Equity ETFs are the main allocation type for ETF investors in China, among which diversified equity ETFs have the highest allocation rate. Some 80 per cent of ETF individual investors have allocated equity ETFs, which are their main choices for investing in ETFs; among equity ETFs, broad-based ETFs are the most popular category.
Avoiding individual stock risks, solving investment selection problems, low fee rates, and high liquidity are the main factors driving inflows to ETFs in China while investment prospects, fund size, and fee rates are the main concerns of individual investors when purchasing ETF products.
The survey found that when individual investors in China choose ETF products, they mainly pay attention to factors such as investment prospects, fund size, and fee rates.
“Compared with individual investors, in addition to investment prospects, fee rates, and liquidity, institutional investors will also consider underlying assets/holdings and other factors,” the survey says.
Insufficient knowledge of ETFs and less understanding of investment channels are challenges, resulting in lower willingness to allocate to ETFs and lower investment amounts, the survey says. Investors in China have limited knowledge about ETFs, especially those who have not invested in stocks before.
Investors in China who have knowledge of ETFs know more about broad-based ETFs, as opposed to industry, theme, style and strategy ETFs, which are considered to require a higher degree of professionalism and in-depth understanding of products; in the case of not knowing much about this type of product, investors’ willingness to allocate and the amount of allocation are low, the survey says.
Compared with overseas ETF markets, the number of domestic China ETF products is small and the product diversity is insufficient, the survey says.
However, investment appetite for ETF investment remains strong, suggesting increasing capital flows into ETFs. Over 90 per cent of investors in China will consider starting or continuing to invest in ETFs in the future, and among users who have purchased ETFs, they will consider increasing capital investment in the future. The proportion is relatively high, the survey comments.
Product demand is becoming more abundant, and the willingness to allocate to various ETFs has increased. “Investors will still choose equity ETFs as the main investment category in the future, followed by bond ETFs, currency ETFs, overseas ETFs and commodity ETFs. Willingness has increased and the demand for ETF products has become more abundant.”
In equity ETFs, investors will continue to prefer broad-based ETFs. The willingness to allocate ETFs has increased, and the willingness to allocate to style strategy/Smart Beta ETFs has increased significantly, according to the survey.
Looking forward, individual investors in China will greatly increase their willingness to allocate to overseas ETFs in the future, with some 30 per cent of individual investors planning to allocate to overseas ETFs in the future, and their willingness to allocate has greatly improved.
Among them, investors with high education, significant investment experience, and high total investment amounts are more willing to allocate to overseas ETFs, focusing mainly on equity ETFs.