Australian ETF trends: Adoption grows to 1.9 million in 2022 amid market turbulence
New industry research on Australian ETF trends shows more than 1.9 million Aussies now invest in ETFs, up from 1.7 million last year with growth of 6% year on year.
The 2022 BetaShares/Investment Trends ETF Report showed the continued resilience of the Aussie ETF sector in what has been a difficult year for financial markets.
The report into Australian ETF trends found an additional 230,000 investors are expected to invest in ETFs for the first time in 2023, which if realised would see the ETF industry pass 2 million investors sometime next year.
The report surveyed more than 800 financial advisers and 2,466 current ETF investors between August and October 2022.
Despite volatile markets and increasing inflation, 1.4 million existing ETF investors – or 76% of the existing ETF investor base – intend to increase their allocation to ETFs in the next 12 months.
As the ETF industry grows the unlisted managed fund structure has sustained all-time record outflows so far in 2022.
According to Morningstar data ETFs have received net inflows of ~$12 billion in the year to October 2022, compared to ~$25 billion in net outflows in unlisted managed funds.
BetaShares CEO Alex Vynokur said while available globally, and in Australia, for more than 20 years, more Australian investors than ever before have been turning to ETFs in this volatile year for financial markets.
“In that period, ETFs have weathered many storms and have delivered a true to label investment experience for all types of investors, ranging from some of the largest global pension funds to an individual that is investing for the first time,” he said.
“The key benefits of ETFs – namely convenience, liquidity, transparency, and cost-effectiveness – continue to resonate as more investors allocate greater amounts of their portfolios to ETFs than ever before.
“In contrast, managed funds have seen record outflows as more investors continue to turn to ETFs as the vehicle of choice for progressing on their financial goals.
The report into Australian ETF trends showed investors see ETFs as an increasingly important component of their investment strategy, with 32% of ETF investors now using the investment vehicle as the core of their portfolio, compared with just 4% in 2019.
At 46% a growing number of investors are also attracted to the ability of ETFs to provide a robust portfolio core.
“An important indication of the growing role that ETFs play in portfolios is the increasing number of investors using ETFs as the core of their investment strategy,” Vynokur said.
The report found 73% of investors use ETFs for portfolio diversification, with it also highlighting they continue to grow at the expense of direct shares and managed funds.
Vynokur said investors are attracted to the ETFs, which offer a diversified low-cost, convenient and cost-effective investment vehicle.
“It’s no surprise that with ongoing market volatility, investors continue to place importance on diversification and cost within their portfolio and are using ETFs to achieve those objectives as part of their overall wealth creation journey,” he said.
After strong inflows to ETFs offering exposure to International Equities in previous years, more investors have reported owning Australian equities (78%) compared to global shares (76%) in this year’s report.
Thematic (27%), responsible investments (19%) and Australian property (17%) completed the top five asset classes for ETF investors.
“ETF investors have reacted to the post-pandemic market volatility and inflation by allocating to Australian equities over their international counterparts. Industry data backs this trend, flows into Australian Equities ETFs have outpaced their international counterparts by ~$1 billion so far this year,” Vynokur said.
Investment Trends CEO Eric Blewitt said ETFs tick the boxes for many investors, particularly around ESG and thematics.
“Fourteen years of research into ETFs provide ample evidence that ETFs help provide investors greater choice and better access to financial markets,” he said.
“This year’s data highlights ETFs look set to play a central role in enabling ESG alignment and thematic investing.”
Another 230,000 Australians intend to start investing in ETFs for the first time in the next 12 months, which would see the sector pass the 2 million investors milestone.
“Going into 2023, it appears as though investors are thinking more about overall cost and diversification within their portfolio. With these matters front of mind for investors and their financial advisers, we expect further growth in the adoption of ETFs next year,” Vynokur said.
“As a result, we expect net flows from investors to exceed $20 billion next year, while industry funds under management is on track to hit $150 billion, up from ~$130 billion today.”