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Are we at peak ETF?

“By any measure the Australian ETF industry still has a very long way to go versus more mature markets like Canada and the US. There are a number of metrics that indicate just how far this industry still has to grow.”



The exchange-traded fund (ETF) sector continues to experience strong growth, with billions of dollars pouring into these investments in the last year alone.

Investors including self-managed super fund (SMSF) members are turning to ETFs to form part of their portfolio for a number of reasons. For instance, they are generally cost effective and they are as easy to buy and sell as any stock.

New product issuers are constantly releasing new ETFs, giving investors exposure not only to equities, but also to a range of other asset classes, including bonds and property.   

BetaShares is one of the largest ETF issuers in the Australian market. According to its figures, in the 12 months to September this year the Australian ETF industry grew by more than 30%. This represents more than $8 billion in funds that have been added to the sector over this time.
 
Ilan Israelstam is BetaShares’ head of strategy. He explains about 70% of the growth in the industry can be attributed to new funds, with the remaining 30% attributable to growth in underlying asset values.

“SMSFs and their advisers are increasingly comfortable investing in ETFs. Both the number of ETF investors and the investment amount each ETF investor is making is growing,” he says.

Israelstam notes SMSF investors continue to drive the growth of the industry with about 40% of all ETF investors using an SMSF as the vehicle that houses this asset.

“That said, ETFs are becoming more mainstream and we are also seeing strong adoption by self-directed, non-SMSF investors.

“Along with the growth in investors and additional capital entering the industry we have also seen more product launches, with more than 30 products launched in the last 12 months alone.”

Which ETFs are most popular?


So far this year, BetaShares’ data shows ETF products providing exposure to global shares have been the most popular, followed by products providing exposure to the broad Australian share market.

“From an exposure perspective, a number of investors have been looking to increase their allocations to the fast growing, dominant tech companies, with the Nasdaq 100 ETF (ASX: NDQ) being a particularly popular way to express that theme,” says Israelstam.

“We’re also starting to see more interest in actively managed ETFs, which give investors the opportunity to access the capabilities of high quality active managers with the convenience and simplicity of trading ETFs,” he adds.

AMP Capital has joined forces with BetaShares to give SMSF members access to three active exchange traded funds, each offering global exposure and diversification away from the Australian market.

AMP Capital Dynamic Markets Fund (ASX: DMKT) uses AMP Capital’s dynamic asset allocation investment approach, which aims to negotiate the ups and downs of the market cycle.

AMP Capital Global Infrastructure Securities Fund (Unhedged) (ASX: GLIN) gives investors exposure to global growth in infrastructure, and the return potential associated with infrastructure assets.

AMP Capital Global Property Securities (Unhedged) (ASX: RENT) delivers access to a diversified portfolio of property securities and real estate investment trusts (REITs) listed on equity markets around the world.

Looking ahead


Over the next 12 months, BetaShares expect the ETF industry to continue to develop rapidly. It anticipates growth of between 30% and 35% year-on-year.

“We expect more products to be launched both in passive but also active ETFs, as well as a deepening of offerings across asset classes,” says Israelstam.
 
As to whether we have reached peak ETF, Israelstam says, “absolutely not!”

“By any measure the Australian ETF industry still has a very long way to go versus more mature markets like Canada and the US. There are a number of metrics that indicate just how far this industry still has to grow.”

For example in the US, in a recent survey by Blackrock, 52% of investors said they expect to invest in ETFs over the coming 12 months.

“ETF investors represent only about 4% of individual investors in Australia, so there’s plenty of room for growth,” says Israelstam.

In terms of financial planners, 97% of financial planners in the US are currently using ETFs, which compares to approximately 43% of financial planners in Australia.

“No matter which way you look at it, the industry is positioned
Funds related to this article: Dynamic Markets Fund

Navigating the ups and downs of the market cycle. This fund uses dynamic asset allocation to actively adjust the split of investments across asset classes to achieve diversification in response to market changes.

The Fund aims to achieve growth above inflation1 and smooth out the economic cycle over a rolling 5 year basis.

1Consumer Price Index (CPI) - the Reserve Bank of Australia inflation rate, trimmed mean

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