• The Australian ETF market is growing at a faster rate than more mature Europe and North America
  • Big three ETF issuers Vanguard, BetaShares and iShares accounted for nearly 90% of the net flows in Australia over past year
  • ETF industry is evolving to meet the needs of a greater range of investors, particularly around ethical investment strategies

Exchange traded funds (ETFs) have become increasingly popular with investors because of their simple, cost-effective approach to investing, ability to offer both portfolio diversification along with access to megatrends and thematics.

ETFs can either be passive where their sole purpose is to track a benchmark index such as the ASX 200, or can be run by a fund manager trying to outperform an index by actively buying and selling securities.

Stockspot Senior Manager – Investments and Business Initiatives Marc Jocum told Stockhead while Australia only makes up 1% of the global ETF market, it is growing at a faster rate than the more mature Europe and North America.

“Despite the market volatility, the Australian ETF industry hasn’t experienced a month of net outflows since early 2016,  showing a strong appetite for ETFs in up and down markets,” Jocum said.

Despite global volatility the sector Assets under management (AUM) grew 5.9% in October for a total market cap increase of $7.3 billion,  the largest industry monthly dollar AUM growth on record.

Big three ETF providers dominate Aussie market

The big three ETF issuers – Vanguard, BetaShares and iShares by BlackRock – accounted for nearly 90% of the net flows over the past year.

Jocum said based on the latest data, it appears that index ETFs will continue growing in popularity once investors review their returns from this current period of market volatility.

“Index ETFs have shown to deliver above-average performance in up and down markets, a feat that few actively managed ETFs and fund managers have achieved,” he said.

BetaShares CEO Alex Vynokur said investors from all walks of life continue to be drawn to ETFs in all market conditions to build a well-constructed investment portfolio.

“ETFs have enabled millions of investors from Australia and around the world to take a long-term approach to wealth accumulation focussed on regular investment and compounding of returns,” he said.

“This form of disciplined investing, as opposed to market timing and stock picking, helps take the guesswork out of wealth creation by offering low-cost and diversified exposure to the market.”

Investors looking for diversity turn to ETFs

He said with current market volatility, investors are giving more attention to questions about cost and diversification within their portfolio.

“The focus on these two questions is driving more investors to ETFs given their inherent attributes as a simple, transparent, and cost-effective way to achieve exposure to a diversified portfolio of assets, across Australian and International equities, bonds, and other assets,” he said.

Vynokur said the ETF industry is also evolving to meet the needs of a greater range of investors, particularly when it comes to building out ethical and responsible investment strategies.

“A greater number of investors are increasingly looking for ways to meet their investment objectives while also building a portfolio that aligns with their ethical outlook,” he said.

“To that end, we expect a greater number of ethical, sustainable and impact investment options to be made available that will ultimately allow investors to build a responsible portfolio containing more asset allocation options.”