Tidal Forces – Can active funds fight the passive flows in Asia?______

Calastone, the largest global funds network, issued a report ‘Tidal Forces – Can active funds fight the passive flows?’, looking into how index tracking and active management funds are performing and developing in a number of key markets around the world, including Asia. The report analyses the investor trends which emerge from the hundreds of millions of trades that have passed across Calastone’s network over the last two years. The findings show that passive funds are exploding in popularity, while active fund flows reach new lows.

Active vs Passive

  • In the UK and Australia, roughly US $2 in every US $3 is still actively managed; in Hong Kong, this figure remains a little higher, with 72% still actively managed versus 28%.
  • In Singapore, active funds still represent almost the entire open-ended fund market. In fixed income, they remain more dominant than they do in equities.
  • However, passive funds are proving more popular. Investors in Europe and Hong Kong have withdrawn capital from active funds in each of the last two years, while adding to index trackers.
  • Taiwanese investors were net sellers of both active and passive funds over both years, but the outflows from active funds were fifty times larger.
  • Active fixed income funds are especially popular with Asian investors.
  • Active funds are still significantly larger than their passive counterparts in terms of total assets under management, though there is wide variation around the world.

Index Tracking

  • The value of inflows in passive funds depends on the extent to which index trackers have become embedded in the local savings culture. In Australia and Singapore, for example, index funds are scoring higher, indicating steadier buying, but the overall value of capital flowing into active funds is significantly greater.
  • Index funds account for less than a fifth of equity fund turnover on Calastone’s network, less than their share of AUM (active funds made up the rest). This is because investors are steadily buying.
  • High trading volumes in active funds reflect frequent decision making rather than popularity – active funds shed US $5.4bn of capital over two years.
  • Investors in Asia and Europe opted for passive funds; UK and Australian investors prefer active emerging market funds.

ESG Funds

  • ESG funds are the undisputed success story of the last two years for the asset management industry.
  • ESG funds have taken US $84 out of every net $100 flowing into equity funds, a total of US $15.1bn out of US $18.1bn.
  • Based on fund flows, investor appetite for ESG funds is growing in Asia and Australia but they appear to be about two to three years behind the UK and Europe.
  • Across Asia, the speed at which attitudes are changing depends on the level of market development. Former MSCI APAC expert Jack Lin points out that the more investors feel they have ‘caught up’ with living standards in the rest of the developed world, the less they fear they have to ‘give something up’ in order to be responsible investors.
  • Keeping ethical considerations at the core of businesses can make the fund range more attractive to investors, as demonstrated by the flow of capital into active ESG funds.
  • Passive ESG funds are growing too, though they are more expensive than conventional index trackers, and there remains a question over whether simply tracking an external ESG benchmark is rigorous enough for investors.
  • Australians are lagging further behind when it comes to adopting passive ESG funds, while Asian investors have shown no interest at all.


  • 2020 started with net outflows as COVID-19 took hold in China.
  • Investors in Asia were the first to sell, followed by Europeans, while those in the UK took longer to respond.
  • From April onwards, money flooded into equity funds as asset prices were inflated by tumbling long-term interest rates. We saw net buying of US $23.0bn between April and December, over half of which took place in the last two months of the year as vaccine approvals signalled an end to the crisis.
  • Inflows to equity funds were worth US $3.79 for every US $100 traded in 2020, a reading of 52.0 on our Fund Flow Index. For the full year, inflows were a net US $19.5bn.
  A word about methodology We have analysed hundreds of millions of buy and sell orders from 2019 and 2020, tracking monies from IFAs, platforms and institutions as they flow into and out of investment funds. A single order is usually the aggregated value of a number of trades from underlying investors passed for example from a platform via Calastone to the fund manager. In reality, therefore, our research tracks the impact of hundreds of millions of investor decisions each month. We have not adjusted our figures for our market share. This varies widely from one country to another, but is over 70% in some territories. Any figures that appear in this report therefore only refer to volumes that pass over our own network. With such precise and granular data, we are nevertheless confident that the picture we are painting is representative of wider market trends. All figures refer to orders where they were placed, not where they were executed. Some markets like Australia see very little cash flow offshore. Others, like Taiwan, see almost all of it settled elsewhere. In the UK, about 15% of transactions by value takes place in funds domiciled offshore.

Global Calastone Fund Flow Index