Asset prices dampen ETF growth

The exchange-traded fund (ETF) industry experienced muted growth in 2018, with the level of funds under management (FUM) below BetaShares’ forecast for the year due to declines in asset prices.

The “BetaShares Australian ETF Review – End of Year Review 2018” said the Australian ETF industry grew by 13 per cent in 2018, ending the year at $41 billion in FUM.

This figure is up $5 billion from the $36 billion recorded in 2017, but it failed to reach the manager’s forecasts of between $47 billion and $49 billion.

SMSF investors contributed around 35 per cent of the net inflows into ETFs during 2018 and made up around 30 per cent of the investors in ETFs in Australia.

All of the year’s growth came from net inflows, with $6.2 billion of new money entering the sector, representing the second highest annual movement on record.

The global ETF market recorded its second highest year of inflows, receiving US$516 billion. But significant asset value depreciation caused total global ETF FUM to end the year at US$4.8 trillion, which was around the same level as 2017.

BetaShares chief executive Alex Vynokur said: “In the year that just concluded, there has been a strong correlation between what we’ve seen happen in the local ETF market and globally, particularly as relates to net inflows.”

Trading activity levels increased by 14 per cent from 2017 to over $36 billion in 2018.

Australian investors continued to opt for global equities, with the asset class ranked as the number one category for new money arrivals for the fourth year in a row, having attracted $2.9 billion of net inflows during 2018.

Australian equities followed with $1.5 billion, with fixed income placed closely behind with $1.3 billion of net inflows.

“Australian investors typically hold an underweight exposure to fixed income, although more are starting to increase allocations to this asset class as a defensive shield for their portfolios,” Vynokur noted.

“Given current product innovation, we believe that it’s very possible that fixed income ETFs could surpass Australian equities products to become the second most popular category in 2019.”

On the other hand, BetaShares head of strategy Ilan Israelstam told selfmanagedsuper SMSFs tend to lean heavily towards cash, property and Australian shares, resulting in heavily concentrated portfolios.

According to Vynokur, the fund manager expects the ETF industry to end this year with its FUM around $50 billion.

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