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Monday, 1 August 2022

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 * More Asian Investors Choosing Thematic ETFs

(Image: Shutterstock)
ADVERTORIAL Wednesday, 29 June 2022 07:20


MORE ASIAN INVESTORS CHOOSING THEMATIC ETFS



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Megatrend-themed ETFs are becoming a core element of many investment portfolios
across Asia Pacific, according to experts from BlackRock.

Making sound investment decisions is rarely a straightforward task, and it has
become even more challenging due to the growing uncertainties in the current
business environment. Unsurprisingly, investors aiming to safeguard their
investments and generate steady returns in volatile markets are increasingly
focusing on the opportunities created by megatrends, which represent long-term
structural shifts that are expected to change the way we live.

According to BlackRock, which has approximately 40 billion U.S. dollars of
thematic ETFs and index assets under management (AUM),1 there are five
megatrends that not only transcend current economic and geopolitical events but,
in many cases, are reinforced by them.

These include climate change and resource scarcity; demographics and social
change; emerging global wealth; rapid urbanization; and technological
breakthroughs.2 «The definition of a megatrend is a trend that can shape our
society and economy,» said Claire Cheng, Strategist for Thematic Investing, APAC
ETF and Index Investments, BlackRock.

A Multi-Trillion-Dollar Opportunity

Consider the «demographics and social change» megatrend, which addresses the
emergence of Asia as a global economic powerhouse. The region, with its young
and upwardly mobile population,3 is on track to exceed 50 percent of global
gross domestic product and account for 40 percent of global consumption by
2040.4

As demand ramps up across the region, the retail sector alone is estimated to
present a 10 trillion U.S. dollar growth opportunity for businesses.5 There is
also the «climate change and resource scarcity» megatrend. This trend
encompasses the ongoing global effort to move to a net-zero economy, which is
estimated to require capital investments worth as much as 100 trillion U.S.
dollars by 2050,6 and the business opportunities created by these inflows.

Technology, which is at the core of all these megatrends, continues to transform
industries, ranging from healthcare to real estate, as demonstrated during the
pandemic.7 Looking ahead, the emergence of new concepts, such as blockchain,
provides fresh potential.

With the value of blockchain’s contributions alone estimated to exceed 3
trillion U.S. dollars by 2030,8 investors are paying close attention to the
long-term opportunities created by the rapidly evolving world of technology. 

Spotlight on Technology and Sustainability

According to a survey of institutional investors,9 84 percent of respondents
intend to increase their exposure to ETFs in 2022, with the three most popular
themes being ESG, technology, and digital assets. «From an investment rationale
perspective, we are big believers in the two themes of sustainability and
technology,» Cheng said, adding:

«They are also the hottest topics among the investor community.» Drilling
further down into these megatrends, Cheng identified clean energy and
semiconductors as key sub-themes to track. While renewables form a crucial part
of many countries' energy transition strategies,10 semiconductors are now the
lynchpin of the global economy, powering everything from smartphones to
automobiles.

Demand has grown in line with a rapid global economic recovery, which has, in
turn, worsened an ongoing supply shortage,11 and the world’s chipmakers have
seen their revenues grow impressively.12 «Semiconductors play a key role in
today’s digital economy … and they are the key enablers of many innovations,»
Cheng said.

«The companies that make semiconductors have stronger pricing power, having
benefited from this chip shortage, and we expect them to continue to do well for
the rest of 2022.» BlackRock’s 34 globally listed thematic ETFs are designed to
provide exposure to each of these megatrends and aim to outperform the market
over the long term.13

Investing with a long-term horizon is important in the face of market challenges
such as inflation and increasing global geopolitical tensions.

Thematic Investing Attracts Interest in APAC

As investors recognize the benefits of thematic ETFs – which enhance investor
access to megatrends in an efficient and cost-effective way – the AUM of ETFs is
growing across Asia Pacific. «The wealth segment is the leading client base when
it comes to thematic adoption in Asia,» noted Georgina Mitchell, iShares
Specialist, Asia ex-Japan Wealth Distribution, BlackRock.

While the U.S. and EMEA remain the biggest markets globally for thematic
investing, millennial Asian investors are turning to thematic ETFs. This
demographic, which finds ETFs easy to understand, is largely drawn to topical
themes, such as blockchain, electric vehicles (EVs), clean energy and green
tech, according to Mitchell.

Additionally, there has been a large shift in the role thematic ETFs play in a
portfolio. Asian investors are moving away from using thematic ETFs as a
satellite instrument, and increasingly including them in their core portfolios
as a strategic holding, Mitchell noted.

«Across all age ranges, clients are aware that thematic ETFs are something that
they need to incorporate into their investment proposition in order to
future-proof their portfolio.» The thematic investing trend is translating into
growing demand for more data supporting the evolution of global megatrends, and
insights into future themes.

Getting the most out of thematic ETFs

This need is ably satisfied by BlackRock’s sizable research team, which provides
actionable intelligence to clients on both current and upcoming themes to
consider. «Not only are investors in APAC increasing their usage of thematic
ETFs, but they also share what future themes they want to see covered in our
product range,» Mitchell said.

«Most of BlackRock’s thematic ETFs are global in exposure, but Asian investors
are requesting more domestic exposures, with Asia- and China-focused themes. In
fact, some of our recent funds have been launched on the back of this client
demand.» Cheng also noted that it is important to recognize the emergence of a
structural trend early on and act quickly to capture the opportunity to get the
best out of thematic investments.

Mitchell agreed, noting that investors should «think about which themes really
resonate with them, and which they truly believe will play out in the long
term.» Overall, thematic ETFs offer a cost-effective, transparent, liquid and
easily accessible opportunity for investors to diversify their existing
portfolios by gaining exposure to the markets and industries benefiting from the
megatrends transforming our world.

1BlackRock, as of 20 April 2022.
2BlackRock: «Megatrends insights on the forces shaping our future», February
2022.
3McKinsey Global Institute: «Asia-Pacific should use its increasing wealth more
productively», January 2022.
4McKinsey: «Asia’s future is now», July 2019.
5McKinsey: «Driving Asia's $10 trillion consumption growth opportunity», October
2021.
6BlackRock: «A sea change in global investing», April 2021. For illustrative
purpose only. Subject to change. There is no guarantee that any forecast will
come to pass.
7CB Insights: «25 Industries & Tech Shaping The Post-Covid World», December
2021.
8Australian Government, Department of Industry, Science, Energy and Resources:
«The National Blockchain Roadmap», 2020. 
9Brown Brothers Harriman, Global ETF Investor Survey, March 2022.
10World Economic Forum, «These countries are leading the transition to
sustainable energy», April 2021.
11Bloomberg: «Wait Times for Chips Grow Again in March as Shortages Drag On»,
April 2022.
12Economist: «How TSMC has mastered the geopolitics of chipmaking», May 2021.
13BlackRock, as of 30 April 2022. 


--------------------------------------------------------------------------------

Claire Cheng
Strategist for Thematic Investing, APAC ETF and Index Investments, BlackRock

Georgina Mitchell
iShares Specialist, Asia ex-Japan Wealth Distribution, BlackRock

--------------------------------------------------------------------------------

Disclaimer

In Singapore, this material is issued by BlackRock (Singapore) Limited (company
registration number: 200010143N). This advertisement or publication has not been
reviewed by the Monetary Authority of Singapore. In Hong Kong, this material is
issued by BlackRock Asset Management North Asia Limited for informational or
educational purposes only, and has not been reviewed by the Securities and
Futures Commission of Hong Kong. This does not constitute investment advice or
an offer or solicitation to purchase or sell in any securities, BlackRock funds
or any investment strategy nor shall any securities be offered or sold to any
person in any jurisdiction in which an offer, solicitation, purchase or sale
would be unlawful under the securities laws of such jurisdiction. Risk is
inherent in all investing. iShares® and BlackRock® are registered trademarks of
BlackRock, Inc.,or its subsidiaries in the United States and elsewhere. All
other trademarks, servicemarks or registered trademarks are the property of
their respective owners. © 2022 BlackRock, Inc. All rights reserved.


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