Bobby Eng
Senior Vice President, Head of Platform and Institutional ETF Distribution
Franklin Templeton
The Global Exchanged Traded Funds market has been evolving and offering institutional investors the opportunity to diversify their portfolios geographically. Bobby Eng, Senior Vice President, Head of Platform and Institutional ETF Distribution, Franklin Templeton, provides comments on ETF and emerging markets trends.
Institutional CONNECT: The Exchange Traded Fund market has exploded over the past 2 decades. How have institutional investors embraced this market?
Bobby: The Global Exchange Traded Funds market is now over $13T USD as of June 2024. Year to date inflows have been over $730B USD with 61 consecutive months of positive net inflows. In Canada, there are almost 1400 listings, $465B CAD in assets and $43B CAD in inflows to date.
Being in the ETF space for over 2 decades, I’ve lived through significant growth in the market. ETFs are among the fastest growing vehicles in institutional portfolios, being used as valuable tools that can support portfolio construction and asset allocation.
At Franklin Templeton, we’re a $2T USD global asset manager with over 70 years of investment management experience, in over 30 countries around the world. Our global ETF platform was launched in 2016, and we now have over 100 ETFs listed globally, and about $20B USD in total assets including – active, passive and smart beta ETFs. Institutional investors have gravitated towards our line-up of passive single country ETFs, which are among the least expensive on the market, providing exposure to over 20 different developed and emerging countries and regions.
Institutional CONNECT: What are the constraints that investors are facing when they focus solely on Canadian and US markets?
Bobby: Canadian investors love Canada! As a result, portfolios tend to reflect a substantial home country bias. And, as with all biases, it comes at a cost. Investors often hear about the benefits of diversification, yet they undercut those benefits by staying close to home and heavily overweighting their portfolios to Canadian companies. Canadian equities are highly concentrated within 3 sectors – Financials, Energy and Industrials – while only representing a sliver of the larger global market. The US market is certainly larger, but recent history has shown that American stocks aren’t producing the kind of diversified growth that is typically attributed to a healthy market.
Prudent investors should look to expand their geographic footprint by adding international exposure for a more complete portfolio. Developed and emerging market equities are a great way to improve diversification while adding upside potential. And it just so happens that international markets are currently more attractively priced than their North American counterparts, offering valuations at generational lows.
Institutional CONNECT: What are the current opportunities in Emerging Markets?
Bobby:One country to look at is India. With a booming economy, favorable demographics, a growing middle class, and deepening strategic ties with the west, India stands as a serious threat to China in the Emerging Markets space. For the last decade, the government has spent heavily on initiatives to open the market, modernize infrastructure, and attract foreign investment. With western governments and corporations now making significant commitments centered on mutual interests and a shared vision, the environment in India looks very promising for investors.
Brazil is also another country that might be overlooked and underappreciated by investors here at home. As a country of over 200 million people with nearly 70% of its population still working age, this is a nation that is ripe with opportunity for growth. It’s a resource rich nation ready to capitalize on big secular trends, such as rising demand for energy and supply-chain localization. It’s a global leader in renewables and clean energy transition. And, it has a vast and growing consumer base with a rising demand for more modern goods and services that have yet to fully penetrate the market.
Institutional CONNECT: For investors considering adding Emerging Markets equities into their portfolios, how can they get the most efficient exposure?
Bobby: Exchange traded funds are a low cost, diversified, and flexible way to get exposure to emerging market equities in one single trade. It can be a convenient way to diversify your investment portfolio and gain access to markets around the world, whether it be regionally or by specific country. It also minimizes the task of hiring a manager, which can be time-consuming and potentially costly if you’re spending time out of market. ETFs can also be used as a transition management tool and flexible tactical asset allocation tool to overweight/underweight the benchmark.
Bobby Eng, Senior Vice President, Head of Platform and Institutional ETF Distribution, Franklin Templeton, will speak at Innovation and Resilience Forum 2024, taking place at Québec City on October 16 – 18.