SMSF representation in ETF market drops

SMSFs may have been early adopters of exchange-traded funds (ETF), but the portion of the ETF market represented by SMSF investors is dropping as ETFs become more mainstream, according to a specialist fund manager.

BetaShares chief executive Alex Vynokur told a media event in Sydney today that the reason for this is not because SMSFs are investing less of their wealth in ETFs, but because investors who do not have an SMSF are increasingly adopting ETFs.

“The cost-effectiveness, transparency and accessibility offered by ETFs makes them appealing for all investor types, whether an institutional asset allocator, a financial adviser, a high net worth individual or a millennial who is just starting to build an investment portfolio,” Vynokur said.

The trend was revealed at the launch of the first edition of the “BetaShares Global ETF Review” to be published quarterly and which will examine the key trends and developments in the ETF industry outside of Australia.

The inaugural report found Australia is lagging in terms of ETF penetration compared to its larger and more mature global counterparts, such as the United States and Canada.

The report said US ETFs represented around 16 per cent of the size of the broader mutual fund industry, while in Australia it is 1.5 per cent.

This is evidence of the growth opportunity existing in the Australia market, Vynokur said.

“While recent growth has been fast, we believe Australian investors are just starting to scratch the surface when it comes to ETF usage and believe that the local ETF industry is positioned for a period of strong growth,” he noted.

The global ETF industry ended 2018 at US$4.1 trillion in assets under management, posting an annual growth rate of 20 per cent since 2005.

In 2018, mutual fund outflows in the US were $164 billion, compared to positive inflows of $213 billion into ETFs.

In the US in 2018, passive funds, including traditional unlisted mutual funds and passive ETFs, attracted net inflows of US$431 billion. In comparison, active mutual funds in the US reported net outflows of US$418 billion.

This is the highest level of annual outflows for this category on record, the report said.

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