The ETF sector recorded its best year to date in 2021 with $26 billion in inflows representing a nearly 30 per cent increase on the previous year and with further growth expected into 2022, Vanguard data has shown.
The figures, released in conjunction with the Australian Securities Exchange (ASX), found the domestic ETF sector attracted $25.9 billion in cash flows and $134 billion in assets under management (AUM) during 2021, representing an increase of inflows of 28 per cent in 2021 from 2020.
Vanguard Australia head of investment strategy group and ETF capital markets, Asia-Pacific Minh Tieu said retail investors seeking income had contributed to the growth of the sector.
“The extraordinary growth of the Australian ETF industry has in part been accelerated by the entry of new retail investors, particularly in the last two years as more Australians seek ways to build sustainable income or new avenues to channel discretionary pay,” he said.
“While demand for ETFs from advisers and institutional investor’s remains strong, it’s the surge in retail flows that has been especially noteworthy. It’s encouraging to see ETFs really enter the mainstream as more and more personal investors appreciate their inherent benefits – namely that ETFs are low-cost, diversified, and easily accessible.”
Tieu said the growth of the Australian market was similar to that of the US which has increased an average 23.9 per cent in AUM every year in the past five years while the Australian ETF market averaged an increase of 39.5 per cent in AUM every year in the last five years, which Tieu said the growth has its similarities.
“If we compare the U.S. and Australian ETF market, the trajectory of growth is similar. While the U.S. market is bigger and at a different stage of adoption, Australia is certainly catching up. It’s a strong indicator that ETFs are not just an investment fad, but rather a proven long-term investment strategy worldwide,” Tieu said.
In addition, the Vanguard research highlighted a significant emphasis on environmental, social and government (ESG) ETFs which has become popular according to Tieu.
“Generally, ESG ETFs differ to other thematic or niche ETFs because they still retain broad diversification, which is why we see it as an enduring trend that can align to long-term investment goals,” he said.
“Unlike cryptocurrency-related ETFs or those tracking market subsectors like electric vehicles or artificial intelligence, ESG ETFs tend to incorporate a broader universe of securities, making them better diversified and therefore lower in risk.”