John A. Prestbo of Dow Jones Indexes looks at some of the trends in relation to ETFs in Asia, and in using indexes as underlyings for these investment tools.

Date: Nov 2011

Tags: Indexes, ETFs, Passive management, Active management

• Asia is still very much active management-oriented, and the concept of passive investing hasn’t caught on the same extent it has in the US and Europe
• There is nothing in Asia which should pose a barrier to further ETF growth, although it might be a bit slower given that passive investing is not a natural focus for Asian investors
• The main impediment to growth for the Dow Jones Indexes business in Asia is the idea of using passively-based vehicles for active investment management
• Investors can use baskets of stocks rather than picking individual securities, which comes with certain advantages in terms of volatility

According to John Prestbo in an interview, Asia is still very much active management-oriented, and the concept of passive investing hasn’t caught on the same extent it has in the US and Europe.

As a result, he said Dow Jones Indexes is focusing its efforts on the standard breakdown of the markets, either by geography or industry, or potentially by style.

For example, the firm has a big Islamic index family, which has proven to be popular in the Muslim parts of Asia, he explained.

Outlook for ETFs in Asia

Prestbo said the ETF market will grow in Asia following the growth that has been seen in other parts of the world.

There is nothing he sees in Asia which should pose a barrier to such growth, he said, although it might be a bit slower given that passive investing is not a natural focus for Asian investors.

So it will take time for these investors to get used to that, he added, as well as to the vehicles involved in the ETF market.

Challenges for Dow Jones Indexes

The main impediment to growth for the Dow Jones Indexes business in Asia, said Prestbo, is the idea of using passively-based vehicles for active investment management.

This is a disconnect which needs to be bridged before investors understand that they can be active with passive vehicles.

They can essentially do this by using baskets of stocks rather than picking individual securities, he said which comes with certain advantages in terms of volatility – and something which might be appealing to this investor base.