Deutsche Bank Says Fixed-Income ETFs Neglecting Asia Miss Chanceby
Bank started ETF focused on Asia ex-Japan company dollar bonds
Global investor assets in Asia fixed income dwarfed by U.S.
Asia offers opportunities for exchange-traded funds focused on fixed-income assets, as the region has been bypassed by a boom in the products elsewhere in the world, according to Deutsche Bank AG.
‘‘Most of the fixed-income ETFs tend to just focus on developed markets or U.S. corporate bonds,” said Marco Montanari, head of passive asset management, Asia Pacific at Deutsche Bank, which this month started a fixed income ETF providing exposure to dollar bonds from companies in Asia outside Japan. “They are missing out on the Asia space.”
Total net assets in Asian fixed-income ETFs are $5.8 billion, dwarfed by $343 billion in the U.S. and $71.1 billion in Europe, according to Morningstar Inc. data as of Aug. 31. Exchange-traded funds typically keep costs down by passively tracking indexes of securities and help investors diversify their investments. Issuance of dollar bonds by borrowers in the Asia-Pacific region excluding Japan has jumped to $296 billion this year, about three times annual sales a decade ago, according to data compiled by Bloomberg.
“Previously, the Asian corporate bond market was too small to launch an ETF product, but now it has enough liquidity and size,” said Montanari.
The firm listed its ETF in Germany and the U.K.
“If the ETF is listed in Asia, it cannot be bought by American or European investors,” Montanari said. “However, Asian investors can buy ETFs listed in Europe.”
Deutsche Bank is for now focusing on the Asia investment-grade bond market as it is more liquid.
“In the future, we may launch a high-yield Asia bond ETF but for now, there isn’t enough liquidity,” said Montanari.