ETF trends to boost market size

ETF market growth

The ETF market has continued to grow steadily, with the search for yield and overseas exposure pushing the growth among investors and consumers.

The number of exchange-traded funds (ETF) available in the Australian market has increased to more than 200, with the value of the market totaling $60 billion, according to a locally based ETF provider.

According to the latest ETF Securities report on the Australian ETF market, 210 funds, worth a total of $60.24 billion, were available at the end of December 2019, with eight new funds listed across multiple asset classes and one ETF delisted in the last quarter of 2019.

ETF Securities Australia head Kris Walesby said interest in the ETF sector would continue to grow due to the access the funds provided to assets outside of Australia.

“One of the many advantages of ETFs is they provide simple and convenient access to offshore companies without the red tape of foreign market tax reporting and withholding tax complications,” Walesby said.

“Given the ASX is less than 3 per cent of global markets, ETFs are the ideal investment vehicle for investors looking to diversify a portfolio by broadening its geographical reach.”

He said ETFs had developed rapidly from the simple index replication products of the past to tailored funds that covered themes, specific industries or sectors, or used alternative weighting.

The ETF sector was currently under the influence of a number of trends that would continue through 2020, including a search for yield, investing outside Australia and active ETF investing, he added.

He said the low interest rates around the globe were causing investors to seek alternative sources of yield, including the use of infrastructure ETFs as the underlying assets were less vulnerable to market cycles and movements.

At the same time, ETF investors were looking to offset their Australian investment exposures, which had been affected by factors such as the slowdown in resources and residential property, alongside a weaker Australian dollar, he noted.

“This has meant investors have needed to focus more on investing internationally to diversify the local risks and access growth and income opportunities,” he said.

“For example, investors are looking at particular growth themes, like the middle class in Asia, or at sectors not widely available in the Australian market, like technology. Currency ETFs are also becoming more popular, particularly those exposed to the US dollar, which continues to be stronger than many developed-nation currencies.”

He added an emerging area was active ETFs, which tracked the strategies of active investment managers, noting ASIC lifted its suspension of new active ETFs in December 2019 and released new admission guidelines.

“Given international activity in this space as well, there is likely to be further growth in the available active ETFs in the Australian market. These may appeal to self-directed investors looking for active and liquid solutions with greater ease of use compared to many other active managed funds,” he said.

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