Australian ETFs enjoyed a record year, according to Cerulli Associates

Australian dollars

Cerulli Associates’ Singapore office reports that Australian ETFs have enjoyed a record year as investors leveraged ETFs to make a run for safety and diversification during the pandemic.  

The firm writes that Australia’s ETF industry grew 30.4 per cent year-on-year to AUD79.3 billion (USD60.8 billion) in assets under management, according to Morningstar, with net new flows reaching AUD18.7 billion, the highest in five years. 

ETF providers in Australia saw a higher-than-ever proportion of new inflows that came from direct individual investors, often young and entering the share market for the first time, while Cerulli comments that, anecdotally, providers attribute growth to easy access and liquidity of ETFs. 

According to Betashares, 83 per cent of inflows in 2020 went to index products, 10 per cent to active, and 7 per cent to smart beta, indicating that investors wanted broad index exposure rather than paying for active ideas. By category, the industry saw the largest inflows into international equity products, followed by Australian equities, fixed income, commodities, and short products. 

Cerulli writes: “This represented something of a reversion to the equity-heavy norm: those who had previously sought fixed-income exposure were understandably put off by the exceptionally low yields available as a result of the monetary stimulus employed by central banks around the world to fight the pandemic.” 

The firm writes that interest and inflows into funds come at a time of maturity for the ETF market. For the first time, there was a net reduction in the number of ETFs in Australia, from 258 to 256.  

“This reduction may reflect maturity—all obvious gaps in the market are now full and there is no longer a need for dramatic expansion of the product set. The focus now is on getting more money into the products that already exist,” says Ken Yap, managing director. 

Nevertheless, innovation is still a key feature of the market, the firm reports. “ETF Securities launched three new funds last year and reported solid interest in all of them. One was Fang Plus, which debuted during the pandemic, in March 2020, as was a BetaShares Australian technology product, following an Emerging Income Opportunities Active ETF in February. BetaShares also lined up what it calls the first diversified all-growth ETF, a blend of large-, mid-, and small-cap stocks from Australia, global developed, and emerging markets. With a fee of 0.19 per cent, it offers access to 8,000 securities on 60 exchanges. 

“According to ETF Securities, prior to COVID-19, ETF trades accounted for about 4 per cent of total trades on the Australian Securities Exchange. However, during the peak of the pandemic, this increased to around 10 per cent. It appears that a flight to safety was conducted in large part through ETFs,” Cerulli reports. 

“The investment management industry underwent many challenges in 2020. However, it was a remarkable year for Australia’s exchange-traded product sector, which has emerged resilient and recorded no issues with liquidity or redemptions,” said Yap. “While there are signs that the market has matured, there is still room for innovation and some product gaps to be filled.”  

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Beverly Chandler
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