TaiKang Asset Management launched its first exchange-traded fund (ETF) this month, just weeks after Tianhong Asset Management, controlled by Jack Ma’s Ant Financial Group, entered the ETF market..

The attractive prospects of ETFs in the world’s second largest economy have also lured global ETF giant Vanguard, which set up an investment advisory venture with Ant in June..

ETFs, which are low-cost investment funds that usually follow the index and trade like stocks on exchanges, have gained traction in China as pick-fund managers increasingly try to beat benchmarks. Individuals also use ETFs to diversify risks.

«Retail investors in China find it increasingly difficult to make money trading individual stocks», – said Freddie Chen, managing director of Vanguard, an American pioneer in index investing.

«ETFs are also attracting institutional investors as a convenient asset allocation tool», – he added.

ETFs in China have nearly doubled to over $ 70 billion over the past year, according to Z-Ben Advisors, a Chinese fund consultant. At the same time, asset management and balanced funds grew slightly.

Despite its rapid growth, the ETF market in China is still 10 years behind the US and represents a small fraction of the $ 5 trillion global ETF assets, said Philippe El-Asmar, head of Asia Beta Strategies at J.P. Morgan Asset Management.

El-Asmar predicts that China’s $ 100 billion ETF market will grow to $ 500 billion in five years, making Japan’s $ 300 billion sector the largest in Asia. Hua An Fund Management Co predicts market will grow 10 times in a decade.

Lured by the rosy outlook, more fund managers are looking to catch the departing train with over 100 new ETF products awaiting regulatory approval.

Competition for $ 100B in China ETF Market Intensifies

«Our vision is to be China’s largest index fund provider», – said Yang Chao, deputy head of index investing at Tianhong, which launched its first ETF in September.

Asset manager renowned for supporting the world’s largest money market fund Yu’e Bao through online platforms, aims to replicate the fund’s success in the ETF market.

Jason Hsu, Chairman and CIO of Rayliant Global Advisors, said innovation is the key to new product success.

«You don’t want to go to a price war with established players. You cannot win», – said Hsu, whose company has partnered with China Asset Management Co to develop the so-called «smart beta» ETF. Such ETFs aim to outperform the index by using a rule-based system to exploit market inefficiencies that Xu said is still widespread in China..

J.P. Morgan’s El-Asmar said there is great potential as such «smart beta» funds account for 20% of the US ETF market, while in China this ratio is only 2%.

Competition for $ 100B in China ETF Market Intensifies

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