This publication recently interviewed Jane Leung, head of iShares for Asia-Pacific at BlackRock. iShares is the world’s largest brand for exchange traded products; her role means she has a prominent role not just in the ETF space but across the asset management sector in the region.WealthBriefingAsia recently spoke to Leung about her firm, its strategy and the state of the market.
Please describe your role and area of responsibility.
I am head of iShares in Asia Pacific, running all of our operations in the region, including in Japan and Australia. It’s quite an interesting and complex business as we have offered locally listed ETFs in the region since 2001 when we launched products in Japan and in Hong Kong. Today we have 53 ETFs listed regionally and it is my role to ensure that we have the proper infrastructure behind our funds to ensure the high levels of liquidity and trading ease that our clients require, and a distribution and capital markets platform to drive the education necessary at this stage of the development of the ETF market. I also lead our team here in assessing what our offering will look like in the future, planning what products will be required to meet evolving investor demands in the region.
When did you join iShares and where did you work before?
I joined Blackrock (via its predecessor Barclays Global Investors) in 2001. Before my current role, I was head of BlackRock's Asia Pacific index equity team and was responsible for portfolio management activities across the region, covering iShares and other institutional products. My first role in the region was as senior director of product in Asia ex-Japan for iShares, where I was responsible for product development, product management and portfolio management within the region. Prior to that, I was based in the US as senior portfolio manager on the US iShares equity portfolio management team and US institutional equity portfolio management team. Before iShares, I worked as an active portfolio manager at Berger and Associates, and as an investment banking analyst at Donaldson, Lufkin, and Jenrette, both in the US.
How do you see your role at iShares in terms of its overall business strategy? Can you flesh out the goals for the Asian business?
iShares has been at the forefront of ETF growth globally, leading to our market position today. My role in Asia-Pacific is to drive that momentum regionally, ensuring that we are not only growing our own business through innovative and best-in-class products, but developing the market in Asia through the build out of the capital markets ecosystem for ETFs and providing education for our clients in how to use and trade ETFs. As an example, 50 of our APAC institutional clients have had in depth product training and due diligence in US, EMEA and Asia this year alone.
Sometimes ETFs which have been launched are de-listed or merged etc to deal with shifts in client demand. How important is it for providers of ETFs to keep a watch on the demand for their products and avoid over-proliferation?
At iShares, we constantly evaluate the shape of our product line up in the region, both for current demand and also for the future needs of investors. It may be that a product is suited to particular market dynamics that are expected to occur in the future. The ETF market in Asia is still developing and providers may introduce products to the market that end up being delisted. While, there are certainly many reasons for this which may be unique to a particular issuer or their strategy and are not necessarily reflective of adoption of ETFs in the region. The recent withdrawals that we have seen in the Hong Kong market just go to show how difficult it is to be successful in the region.
What would you say are the main types of ETF in hot demand at the moment and what is less desirable?
2012 witnessed phenomenal growth in China access products: Among the top 15 new products in 2012 by assets gathered, ten were listed in Asia Pacific and six provided exposure to Chinese equities. This was a trend we saw in our own products, particularly our A50 ETF listed in Hong Kong which saw around US$1.5 billion of flows. In terms of regional products, 2013 has followed broader market trends and seen a lot of money flow into Japanese ETFs: 75 per cent of flows into Asia Pacific ETFs have been in to Japanese equities year to date.
What those figures do not tell you is the flow from Asia into global products, as institutions tend to buy ETFs in the market where the underlying securities trade, which could be Asian investors buying in London or New York. We typically see twice the size of flows from Asian investors into global products than we do into Asian products in total. This year, we have seen large allocations to fixed income ETFs from Asian institutions across the region, particularly from Japan, Korea and South East Asia and this is a trend that we expect to grow.
Does the total expense ratio capture the full cost of ETFs? There are other frictional costs in trading these vehicles - how important is it that clients understand this?
There is more to an ETF than the total expense ratio, and clients should be aware of costs they pay brokers to trade as these may vary. In addition, it is important for investors to know what they own and to look at the risk controls of products. The harder it is to track the underlying assets, the more explicit and implicit costs there are within the ETF.
How much use do you see wealth managers making of ETFs and how are they using them?
We expect wealth managers in the region to recommend ETFs more and more as a core allocation for their clients as they begin to adopt fee-based models, as we have seen in the US, UK and Australia. ETFs are the perfect investment instrument for these models because of the convenience of access and low cost.
Of recent trends, we see wealth managers using ETFs tactically for immediate exposures and increasingly within structured products, for both advisory and discretionary work.
What would you say is the most unusual ETF in your product range?
Regionally, I would say that our most unusual and innovative product is our iShares RMB Bond Index ETF, which we launched in Hong Kong this past summer, as it was the first offshore product of its kind in Asia. It offers RMB investors a relatively high yield without the drawbacks and restrictions of many of the other options available to them and is a convenient tool for HK dollar investors looking to gain exposure to renminbi for potential currency appreciation.
Who do you work with at iShares? Can you tell us about a few of your team members?
We recently appointed Susan Chan as Head of our iShares capital markets team. She is responsible for developing and maintaining ETF liquidity and supporting client trading through strong and effective relationships with our capital markets partners, including broker dealers and exchanges. Her appointment reflects iShares’ focus on capital markets in Asia and globally as we believe this is one of the capabilities that sets us apart in the market.
Tom Keenan heads up our team of ETF specialists who partner with the broader BlackRock sales teams in order to deliver the iShares experience. He joined the team here from our business in Australia and focuses on client education for regional official institutions, insurers, private banks and other intermediaries.
What is the main challenge in selling ETFs in your region and what sort of distribution channels do you use?
We integrated some of our sales teams for iShares with the broader sales teams at BlackRock at the end of 2012. That has allowed us to approach conversations with clients from a wider perspective, leading to a greater degree of customisation in what we can offer as well as broader reach for iShares. At the same time, we have a team within iShares that is dedicated and focused on ensuring that the unique aspects of trading ETFs are well-understood by clients.
We have certainly seen that working with insurance companies and asset managers as we have a better understand of their investment needs and have been quite successful. As a result we’re starting to see greater and greater adoption of our products. Examples of new ways to use ETFs have been as building blocks within products that utilise active elements as well. Our distribution has historically been focused on intermediaries, rather than direct to the consumer, meaning we distribute to private banks, wealth managers and brokers. However, we also make sure that our educational programme is available to end investors through regional events with our intermediary partners.