• Aussie ETF sector continues to be hit by market volatility with AUM shedding $6 billion in June
  • Market declines for ETF industry in all but one month of 2022 so far
  • Despite drop sector remains positive investors are using ETFs as a long-term strategy to build wealth

Heavy sell-offs in June has caused a hit to the Aussie ETF industry, with assets under management (AUM) dropping $6 billion in value according to BetaShares latest monthly report.

The market has been wobbly all year but on June 14 the ASX took a turn for the worse with the S&P/ASX 200 falling 3.5 per cent to 6686 points, its worst trading session since May 2020 and one of the biggest declines since the Covid-19 pandemic began.

Inflation fears, rising interest rates, slowing economies globally, supply shortages and the ongoing war in Ukraine plus cyclical end of year sell-offs all added to pressures on markets and the ETF sector in June.

The S&P/ASX 200 is now officially in correction territory having fallen more than 10% from its high of 7632 in August 2021.

Certain sections of the market have  fallen even further and are officially in bear territory (a fall of 20% from their most recent high). The S&P ASX Technology Index as an example is down ~33% YTD.

Over in the US the S&P 500 is down ~20% YTD and tech-heavy Nasdaq Composite Index (Nasdaq:IXIC) has fallen ~29%. In crypto land Bitcoin has fallen more than 58% YTD.

Net flows remain positive

BetaShares said at the end of June 2022, the Australian ETF industry holds $124.3 billion in funds under management, while net flows were $596.7 million for the month.

Market declines caused the Australian ETF industry to fall in value again in June, even though net flows into the industry continued to remain positive.

The industry has received positive net flows for each month of 2022 so far, but market declines have now caused monthly declines in all but March in the year to date.

 

Category inflows (by $) – YTD

Source: ASX and CBOE

Category outflows (by $) – YTD

Source: ASX and CBOE

Tough start for ETFs launched in June

BetaShares launched three new ETFs in June including:

Fundie Perpetual also launched another actively managed ETF, the Barrow Hanley Global Share Fund (ASX:GLOB), which aims to track quality global equities.  The fund is managed by Barrow Hanley, part of Perpetual Asset Management International.

Since their launch a mere month ago all have felt the brunt of the heavy June sell offs.

Two cryptocurrency ETFs launched in Australia on CBOE in June as the crypto market continued its downward trend. Canadian digital investment fund 3iQ launched the CoinShares Bitcoin Feeder ETF (CBOE:BT3Q), offering exposure to Bitcoin and the daily price movements of the US dollar price of Bitcoin, and the opportunity for potential long-term capital growth.

The 3iQ CoinShares Ether Feeder ETF (CBOE:ET3Q) gives exposure to Ether and the daily price movements of the US dollar price of Ether, and the opportunity for potential long-term capital growth. Both have felt the pressure of falling crypto markets, declining since launch.

Buy and hold strategy 

BetaShares CEO Alex Vynokur told Stockhead over the first half of 2022, investors have continued to use ETFs as a long-term buy and hold investment strategy despite the market volatility.

“It’s pleasing to see investors continue to take a long-term view and are using ETFs as building blocks for their increasingly sophisticated portfolios,” he said.

“In fact, the latest data shows that ETFs continue to be the investment vehicle of choice for investors seeking to build long-term wealth.

The return of inflation, rising interest rates and ongoing geopolitical uncertainty has seen ETF investors seek out exposures that are closer to home.

“The latest data shows that investors have added Australian equities exposures to their portfolio over International Equities – which is normally the favoured asset class for ETF investors,” he said.

“Fixed income has also been quite topical as central banks around the world grapple with the return of inflation.

“At BetaShares, we have seen heightened interest in our Australia 200 ETF (ASX: A200) as well as our Australian Government Bond ETF (ASX: AGVT).”

 

Economic uncertainty backdrop to markets 

ETF Securities  head of portfolio management Cliff Man told Stockhead high inflation, rates rises and recession concerns remain the backdrop phrases of  stock markets.

“Activities in the Australian ETF market had shown investors are still cautious about allocating wealth into international assets, which are dominated by US equities and fixed income,” Man said.

“The combined net inflow in June for all ETFs listed on ASX was only $523 billion, which is about one-third of the net inflow in May,” Man said.

He said it was also uncommon to see net outflows across both global equity and global fixed income ETFs in a month.

 “A tight monetary environment over the next 12 months is almost certain,” Man said.

“The US corporate earnings reporting season has just kicked off, which is an opportunity for investors to get a glimpse of the impact of inflation on the biggest economy.”

Stockspot senior manager of investments and business initiatives Marc Jocum told Stockhead he is not too concerned about the the drop in AUM for the sector in June.

“In terms of the drop in AUM, this is mainly due to market prices falling in global equities during the month, whereas the flows were positive indicating that investors are still investing in ETFs despite the market turbulence,” Jocum said.

“The June flows were lower than last month due to market volatility but also potentially due to some investors rebalancing or selling positions in the lead up to end of financial year for tax-loss harvesting strategies in order to minimise their capital gains tax liabilities.”