A Financial Times report from March 2022 suggests that money poured into active ETF strategies in 2021 in Asia Pacific ex-Japan amounted to $51.25 billion, an approximately 19% increase from the prior year’s $43.12 billion, as per data from Brown Brothers Harriman. According to Sean Cunningham, the Hong Kong-based Asia head of ETFs at JPMorgan Asset Management, there has been a significant rise in interest in active ETFs in the region over the last two years.
Chris Pigott, the Hong Kong-based head of Asia ETF services at Brown Brothers Harriman, observed that the cost efficiency of investing in an active strategy while benefiting from the transparency and liquidity of an exchange traded fund is a core attraction for Asian investors. Approximately 79% of investors in Greater China allocated more to active ETF strategies in 2022, up from 71% from the prior year.
At the end of May, the MSCI all country world index gain more than 3% after falling approximately 12.7% in the past seven weeks due to rising rates. Data represents that equity ETFs had inflows of $15.76 billion in the last week of May, the highest in nine weeks. U.S. and Asian equity funds received inflows worth $4.61 billion and $1.22 billion, respectively. Investors seek out Asian ETFs to gain controlled exposure to emerging markets. Some of the most notable underlying stocks in Asian ETFs include Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
We explored multiple Asian ETFs for a well-rounded outlook of some of the top exchange traded funds in the region with notable equity holdings. We have also discussed the prominent holdings of the ETFs to provide better insight to potential investors.
Asian ETFs to Buy in 2022
10. iShares MSCI Japan ETF (NYSE:EWJ)
iShares MSCI Japan ETF (NYSE:EWJ) seeks to track the investment results of the MSCI Japan Index, for exposure to large and mid-sized companies in Japan. The fund was established in March 1996, and as of June 10, the total assets amount to approximately $9.70 billion. iShares MSCI Japan ETF (NYSE:EWJ)’s portfolio consists of 238 stocks and the fund offers a 30-day SEC yield of 1.64%. The expense ratio came in at 0.50%.
Toyota Motor Corporation (NYSE:TM) is the biggest holding of iShares MSCI Japan ETF (NYSE:EWJ), representing 5.39% of the total portfolio. Toyota Motor Corporation (NYSE:TM) is a Japanese multinational automobile company that designs and builds passenger vehicles, minivans and commercial vehicles, and related parts and accessories, catering to customers worldwide.
On May 11, Toyota Motor Corporation (NYSE:TM) posted a FY GAAP EPS of ¥205.23 and a revenue of ¥31.38 trillion, up 15.3% year-over-year. Share repurchases will be 200 billion yen, including 100 billion yen for more flexible share buybacks while considering share price levels. The company forecasts sales revenue of 33,000.0 billion yen for FY 2023, an increase of 5.2% compared to FY 2022.
According to Insider Monkey’s Q1 data, 9 hedge funds were bullish on Toyota Motor Corporation (NYSE:TM), with collective stakes worth $952.85 million, compared to 12 funds in the prior quarter, holding stakes in the company valued at $943.7 million. Ken Fisher’s Fisher Asset Management is the biggest position holder in Toyota Motor Corporation (NYSE:TM), with 5.13 million shares worth $925.65 million.
In addition to Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Toyota Motor Corporation (NYSE:TM) is one of the notable Asian securities on the radar of institutional investors.
Here is what Baron Fund has to say about Toyota Motor Corporation (NYSE:TM) in its Q1 2022 investor letter:
“Toyota’s (NYSE:TM) “kaizen” manufacturing philosophy is based on improving manufacturing by using “just in time” processes to eliminate waste and reduce inventory carrying costs. Clearly the company does not contemplate disruptive change that will dramatically lower costs and improve quality.”
9. Global X MSCI China Energy ETF (NYSE:CHIE)
Global X MSCI China Energy ETF (NYSE:CHIE) seeks to offer investment results that track the performance of the MSCI China Energy IMI Plus 10/50 Index. The ETF was established in 2009 and charges an expense ratio of 0.67%. The net assets amount to $4.77 million and the 30-day SEC yield stands at 8.19% as of June 13, with a semi-annual distribution frequency. Global X MSCI China Energy ETF (NYSE:CHIE) has a fairly concentrated portfolio, consisting of 26 equities only.
PetroChina Company Limited (NYSE:PTR) is the biggest firm in Global X MSCI China Energy ETF (NYSE:CHIE)’s portfolio, with 744,863 shares worth $409 million, representing 8.40% of the total holdings. PetroChina Company Limited (NYSE:PTR) is a Beijing-based company that distributes a range of petroleum related products and services in Mainland China and internationally. The company operates through Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline segments. On May 23, Citi analyst Toby Shek upgraded PetroChina Company Limited (NYSE:PTR) to Neutral from Sell with a price target of HK$3.80, up from HK$3.40, noting that soaring gas prices will help offset the impact of the lockdowns in China.
Among the hedge funds tracked by Insider Monkey, 7 funds reported long positions in PetroChina Company Limited (NYSE:PTR) at the end of March 2022, with collective stakes worth about $86 million. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the leading position holder in the company, with 738,826 shares worth $37.3 million.
Like Alibaba Group Holding Limited (NYSE:BABA), JD.com, Inc. (NASDAQ:JD), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), PetroChina Company Limited (NYSE:PTR) is a significant Asian stock to watch.
8. iShares Asia 50 ETF (NASDAQ:AIA)
iShares Asia 50 ETF (NASDAQ:AIA) seeks to track the investment results of the S&P Asia 50 Index, which is composed of the 50 largest Asian equities. As of June 13, iShares Asia 50 ETF (NASDAQ:AIA)’s net assets equal $1.7 billion and the fund offers an expense ratio of 0.50%.
The largest holding of iShares Asia 50 ETF (NASDAQ:AIA) is Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), a firm that manufactures and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally.
On June 9, Susquehanna analyst Mehdi Hosseini said recent Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) channel checks suggest the company is on track to deliver or exceed the 2Q22 guidance. The analyst noted the company is delaying about $1 billion worth of 28/7nm wafer capacity additions, which will likely drive its 2022 capital expenditure to the lower range of its $40-$44 billion guidance, with chances of flattish capex trends in 2023. The analyst maintained a Neutral rating and a $100 price target on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) shares.
According to Insider Monkey’s data, 81 hedge funds held long positions in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of Q1 2022, up from 72 funds in the preceding quarter. Ken Fisher’s Fisher Asset Management is the biggest position holder in the company, with more than 26 million shares worth $2.7 billion.
Here is what Polen Global Emerging Markets Growth Fund has to say about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q1 2022 investor letter:
“Taiwan Semiconductor (also known as TSMC) is the world’s leading semiconductor foundry, manufacturing 10,761 different products using 272 distinct technologies for 499 different customers. In our experience, fierce competition, the challenge of keeping pace with new developments, and heavy capital requirements tend to make high returns in technology hardware businesses tough to maintain. TSMC, however, in our opinion, is an exception to the rule. For over 20 years, the company has delivered approximately 20% returns on internally invested capital despite elevated competitive intensity and rapidly evolving chipmaking technology. The company enjoys somewhat of a duopoly with Samsung in producing leading-edge nodes; the fastest and most powerful chips used in the most advanced technology. We expect TSMC to uphold its leading market position over the next decade as a result of its business moats which include technological leadership, an execution-focused corporate culture, as well as its established customer relationships.
Although all investments carry risks, some of TSMC’s risks are more company specific. As semiconductors become increasingly critical, countries and leaders are beginning to focus more on ensuring a steady domestic supply. Will the semiconductor industry have to prioritize national interests over shareholder returns? Will China act forcefully to secure access to TSMC’s leading-edge nodes? These risks are hard to quantify but must be weighed against the long-term investment opportunity the company offers. We believe TSMC will continue to compound earnings growth at rates in the high teens for at least the next five years and has potential to make a favorable investment.”
7. Vanguard FTSE Asia ex Japan Shares Index ETF (ASX:VAE)
Vanguard FTSE Asia ex Japan Shares Index ETF (ASX:VAE) aims to track the return of the FTSE Asia Pacific ex Japan, Australia and New Zealand Index in Australian dollars. The fund was established in December 2015, and has a market cap of $43.7 billion. Vanguard FTSE Asia ex Japan Shares Index ETF (ASX:VAE) holds 1,502 stocks in its portfolio and the investments are concentrated in China, Taiwan, India, Korea, Hong Kong, and Thailand, among others. The total expense ratio is 0.44%.
One of the biggest holdings of Vanguard FTSE Asia ex Japan Shares Index ETF (ASX:VAE) is Alibaba Group Holding Limited (NYSE:BABA), the Chinese e-commerce and technology infrastructure giant. Truist analyst Youssef Squali on May 31 raised the price target on Alibaba Group Holding Limited (NYSE:BABA) to $145 from $132 and reiterated a Buy rating on the shares. The analyst noticed that while the company is not “out of the woods” from macro challenges, he is more optimistic on the stock due to the bullish commentary from China’s Vice President about upcoming measures to boost the economy.
According to Insider Monkey’s database, 100 hedge funds were bullish on Alibaba Group Holding Limited (NYSE:BABA) at the end of Q1 2022, up from 96 funds in the preceding quarter. Ray Dalio’s Bridgewater Associates is one of the leading stakeholders of the company, with 7.4 million shares worth $813.8 million.
Here is what Altron Capital Management has to say about Alibaba Group Holding Limited (NYSE:BABA) in its Q4 2021 investor letter:
“The negative headlines surrounding Alibaba seemingly have no end and have certainly tested our conviction in this investment over the past half year or so. The company’s latest earnings report brought lower margins, partially because of slowdown in China and partially because of increased investment into its businesses. Alibaba also lowered its guidance for the coming year, adding even more pressure to the share price. Furthermore, the Chinese government’s talk of “common prosperity” and Alibaba’s USD 15.5 billion ‘investment’ toward the cause has not helped turn around short-term sentiment for Alibaba investors. Fellow tech giant Didi has also announced that they would delist from New York, sparking fears that Alibaba may be next. Despite all the negative press, we still maintain our bullish position in Alibaba. While increased government regulation will likely result in lower long-term margins and/or increased effective tax rates, we still believe the current share price drastically undervalues the company. The company’s core commerce business is still growing at double-digit rates, as are its cloud business and international ecommerce platform. The cloud business, once at scale, should provide high-margin growth offsetting some of the negatives of new regulations. With Alibaba currently trading at a low-teens multiple of future earnings, we see no reason to sell even though our estimate of the company’s fair value has certainly decreased since we first purchased shares in the company. The issues surrounding Alibaba are complex and addressing each issue surrounding the company would take up far too much space in these letters than we would like. However, any clients that have concerns about our investment in Alibaba that have not been addressed in previous letters or discussions are encouraged to contact us with your questions.”
6. SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF)
SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF) tracks the investment results of the S&P Emerging Asia Pacific BMI Index, seeking to provide broad exposure to the Asia Pacific emerging markets. The fund was established in March 2007, and charges a gross expense ratio of 0.49%. As of June 10, SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF) holds 1,377 stocks in its portfolio. The fund’s distribution yield is 3.12%, with a semi-annual distribution frequency.
One of the top holdings of SPDR S&P Emerging Asia Pacific ETF (NYSE:GMF) is JD.com, Inc. (NASDAQ:JD), a Chinese company offering computers, communication, consumer electronics products, home appliances, and general merchandise products.
On May 19, Susquehanna analyst Shyam Patil maintained a Neutral rating on JD.com, Inc. (NASDAQ:JD) but lowered the price target on the stock to $55 from $66. The analyst continues to like JD.com, Inc. (NASDAQ:JD)’s positioning in the big and growing Chinese e-commerce market, and thinks its hybrid 1P/3P model is attractive. The analyst also sees potential for longer-term upside from its advertising and logistics programs, and admires JD.com, Inc. (NASDAQ:JD)’s ability to successfully incubate new businesses.
Chase Coleman’s Tiger Global Management is the leading position holder in JD.com, Inc. (NASDAQ:JD), with 48.7 million shares worth $2.8 billion. Overall, 59 hedge funds were bullish on the stock at the end of March 2022.
Here is what Argosy Investors has to say about JD.com, Inc. (NASDAQ:JD) in its Q3 2021 investor letter:
“We sold JD as a result of the furor over Chinese stocks during the quarter. We had been concerned about China’s lack of respect for investor rights for some time, and Beijing has become significantly more aggressive in asserting itself of late. In addition, the legal structure Chinese companies use to come public in the U.S., a Cayman Islands shell corporation leaves American investors with an unsure path to recovering value should these companies cease to trade on U.S. exchanges. Because of the uncertainty, we exited our position in JD completely. We still love JD’s long-term prospects, but we cannot estimate the legal/regulatory risk associated with these companies anymore. More broadly, we are freeing up cash for some other positions we already own which have declined in this market, and after additional review, remain attractive.”