Asian bond ETFs ease investment barriers in hunt for yield

Tue Feb 17, 2015 4:00pm EST
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By Saikat Chatterjee

HONG KONG Feb 18 (Reuters) - Investors facing zero interest rates in the developed world are turning to Asian debt for higher returns through exchange traded funds (ETFs), driving a nearly 50 percent rise in assets under management last year.

At about a tenth of the size of Europe's volume and a fraction of the U.S. market, Asian bond ETFs have plenty of room to grow but may face limits from structural problems that they can only partly address by pooling bonds in an index.

Sweden last week helped to accelerate the search for yield when it joined the global race to adopt negative interest rates to stave off deflationary pressures.

"ETFs allow investors the flexibility to trade in much smaller amounts than what they would otherwise have to do if they wanted to buy Asian debt and also gives them exposure to a wider array of assets," said Keith Taylor, a portfolio manager at BMO Asset Management.

The ABF Pan-Asia Bond Index fund, among the oldest and the biggest in the region with $3.14 billion in assets, has paid out about 25 percent in total returns since 2010, according to Thomson Reuters data.

Guotai SSE 5-year China Treasury note ETF has returned nearly 9 percent since its launch in March 2013.

Assets under management (AUM) by fixed income ETFs in Asia stood at $11.8 billion by end-2014, up from $8 billion in 2013, growing at a faster pace than in any other region, estimates by Blackrock and Deutsche Bank show.

In comparison, Europe stood at $104 billion and the United States at $312 billion.   Continued...