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«This is a good point and that’s where the smart beta story has come in,» Pigott added. «Although smart beta is still mostly equity-focused, we are beginning to see some developments in the fixed income space away from cap-weighted products.»

Although limited, recent trading history may provide some insights about the health of fixed income ETFs: 80 percent of fixed income ETF trading occurs on the secondary market, according to Vanguard, which recently saw trading volumes triple in the asset class. This means that just one-fifth of trades faced liquidity problems and had to be unwounded to trade the individual underlying bonds.

Next ETF Universe to Conquer?

With smart beta and fixed income ETFs being increasingly established as a mainstay tool for portfolio managers, the industry is looking to other new areas that are ripe for adoption. Actively managed ETFs – a hybrid between active and passive investments – is one such area that has been gaining momentum globally and while still nascent in Asia, adoption is expected to accelerate. According to global ETF survey published by BBH, 63 percent of Greater China respondents expected to increase their holdings of active ETFs. 

«At the moment, we have not seen a huge demand for actively managed ETFs from our PB clients in Asia, and we believe the market still needs some time to learn about this type of products,» said Linda Luk, Vanguard’s Hong Kong head of distribution, who highlighted the wealth segment last week as a major ETF growth driver in Asia via discretionary mandates.

«Nonetheless, we are quite positive about the development of the active ETF market in the next couple of years.» 

Closer to widespread adoption is ETFs that invest in indices based on rules that account for non-financial factors including environmental, social and governance-related issues, or ESG. This has been particularly accelerated by investor confidence in related technological advancements such as renewable energy, development of smart cities and social inclusion via fintech.