Market concerns over ETFs unwarranted

Accusations the exchange-traded fund (ETF) sector is creating an investment market bubble are unfounded and inaccurate, a financial services sector economist has said.

“Obviously growth in ETFs around the world has been pretty strong, in Australia also pretty strong, and the argument is all this money going into the equity markets is pushing up valuations and as people eventually leave or sell their ETFs it’s going to create a market slump,” BetaShares chief economist David Bassanese told a recent SMSF Association Sydney Local Community event.

“What we are seeing historically though is most of the growth in the exchange-traded funds is coming from unlisted actively managed funds.

“So it’s certainly far from clear that there has been a net increase in demand for equity investments globally. It’s really been just a switching in the way in which people hold their investments.”

Bassenese also took the opportunity to dispel additional myths about the ETF sector, in particular the perception they are only relevant for passive investing.

“The point to make about ETFs, and certainly the innovation we’re seeing in the Australian market, is they’re no longer just about plain vanilla passive investing. That debate has moved on,” he said.

“There are a lot of ETFs now that offer smart beta alternatives, rules-based investment strategies and also actively managed funds.”

According to Bassanese, SMSF members should not view ETFs as an instrument singularly wrapped up in the active versus passive investment debate, but instead should approach them as actively managed funds that are available on the Australian Securities Exchange (ASX) trading near their net asset values.

He added product innovation in the ETF sector was affording investors direct access to a number of new investment strategies via the ASX.

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