##{"id":86676,"date":"2020-06-01T10:31:06","date_gmt":"2020-06-01T00:31:06","guid":{"rendered":"https:\/\/www.fnarena.com\/index.php\/2020\/06\/01\/smsfundamentals-aussie-etfs-have-100bn-in-sight\/"},"modified":"2020-06-01T10:37:08","modified_gmt":"2020-06-01T00:37:08","slug":"smsfundamentals-aussie-etfs-have-100bn-in-sight","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2020\/06\/01\/smsfundamentals-aussie-etfs-have-100bn-in-sight\/","title":{"rendered":"SMSFundamentals: Aussie ETFs Have $100bn In Sight"},"content":{"rendered":"

SMSFundamentals is an ongoing feature series dedicated to providing SMSF trustees with valuable news, investment ideas and services, in line with SMSF requirements and obligations.<\/strong><\/p>\n

For an introduction and story archive please visit FNArena's SMSFundamentals<\/a> section on the website.<\/strong><\/p>\n

Aussie ETFs Have $100bn In Sight<\/strong><\/u><\/p>\n

Market volatility has sparked a surge in ETF interest from investors as traditional funds managers suffer outflows.<\/p>\n

-Australian ETFs have grown to $56.9bn in funds under management
-Passive ETFs are preferred over actively managed alternatives
-Precious metals led the way while oil\/energy and property ETFs were the laggards
-Strong trend remains towards ethical and sustainable investing <\/strong><\/p>\n

By Angelique Thakur<\/p>\n

When global financial markets lost their bottle in March, Exchange Traded Funds (ETFs) emerged as investors’ instruments of choice, according to a recent study released by online robo investment advisor Stockspot, in its 6^{th<\/sup> Annual Exchange Traded Funds (ETF) report.<\/p>\n}

The study estimates the Australian ETF market grew by 24% to $56.9bn over the year past; and by a factor of three since 2015.<\/p>\n

The year past saw the addition of 23 new ETF products in Australia, taking the total number of available ETFs in Australia to 212.<\/p>\n

Amidst high volumes in ultra-volatile March, ETF trading volumes grew to $17.8bn, thrice that of the prior month, while actively managed funds saw material outflows during the same period.<\/p>\n

The report highlights ETFs are now more popular than Listed Investment Companies (LICs) in Australia. Stockspot expects total funds under management for ETFs in Australia to grow to $100bn by 2022.<\/p>\n

Some of the eye-catching observations from this year’s sector update include:<\/p>\n

Passive beats active<\/u><\/p>\n

Passive ETFs continued to hold sway over the actively managed options. This has been corroborated by active managers underperforming across most asset classes.<\/p>\n

Stockspot notes almost 48% of active managers could not beat their respective market indices during the March 2020 correction, putting a question mark on their claims of being able to protect investors during corrections.<\/p>\n

iShares Global 100 ETF (underlying index – S&P Global 100, measures performance of 100 multinational companies), a passive ETF, beat 87% of actively managed global share ETFs.<\/p>\n

This was replicated in Australia by the Vanguard Australian Shares Index ETF (underlying index – S&P\/ASX 300 Index) beating 80% of active Australian share ETFs.<\/p>\n

Broad beats niche<\/u><\/p>\n

Money flows showed an overwhelming preference for broad market indices. The Vanguard Australian Shares Index ETF held onto its title of the largest ETF with net inflows amounting to a staggering $1.6bn, pushing funds under management up by 21% to $4.2bn.<\/p>\n

The iShares Core S&P\/ASX 200 ETF (underlying index – S&P\/ASX 200 Index) which tracks Australia’s largest 200 companies saw the second-highest inflows at $871m.<\/p>\n

Worst performers for the year past were niche products (energy, property) with active managed ETFs continuing to lag broader market ETFs.<\/p>\n

Over the twelve months till March 31, the average passive broad Australian share market ETF returned -12.9%. This compares with the average active Australian shares ETF losing -16.6%.<\/p>\n

Flocking towards safe havens<\/u><\/p>\n

Investors flocking towards safer bets was one of the key themes in the year past, according to the report. Money flows into precious metals ETFs saw a material boost.<\/p>\n

In terms of performance, palladium stole the show for the second year in a row, returning 90.2%. The total return of the palladium ETF over the last five years is a mind blowing 363%.<\/p>\n

Gold also gleamed with physical gold ETFs surging on the back of strong performance and new inflows. Total fund under management rose to $2.3bn from $906m last year signifying gold’s importance as a strategic asset to diversify risk, notes Stockspot.<\/p>\n

Oil and property – the buzzkills<\/u><\/p>\n

Unsurprisingly, the carnage witnessed in the physical oil markets was reflected in the beating taken by oil and energy ETFs. Betashares Crude Oil Index ETF (underlying index – S&P GSCI Crude Oil Index) lost almost -65% year on year.<\/p>\n

Another victim claimed by covid-19 was the property sector. Property ETFs went from being one of the best performers, returning an average 29% in 2019, to being one of the worst this time around, returning -32%.<\/p>\n

It can be argued, listed property highlights the pitfalls of investing in ETFs on the basis of past performance alone.<\/p>\n

Strong trend towards responsible investing remains<\/u><\/p>\n

Investors are increasingly turning towards socially responsible investing. Sustainable ETFs saw an increase of more than 73% over the year ending March 31, preferring healthcare stocks and moving away from energy stocks.<\/p>\n

Sustainable ETFs are by far the strongest growers, highlights the report, increasing funds by 79% per annum over the past five years compared with 26% pa growth for other ETFs.<\/p>\n

Australian ETFs<\/u><\/p>\n

The Australian ETF industry continues to be dominated by three major players – Vanguard, iShares and BetaShares – which control more than 75% of the market between them.<\/p>\n

Australian investors are increasingly moving towards low fee ETFs with almost 50% of them preferring ETFs that charge less than 0.25% in fees. This has led to fee wars between players with investors gaining the most, according to Stockspot.<\/p>\n

With a jaw dropping 1000% growth globally over the last five years, Robo advisor platforms are witnessing a tremendous surge all across the world and Australia is no exception.<\/p>\n

Robo advisor Stockspot suggests robo advice is by now one of the fastest growing segments in asset management with investors drawn to it due to the ability to chalk up a portfolio effortlessly while being easy to use and low on costs.<\/p>\n

Finally, the world’s first ETF was created in March 1990 in Canada, which means the sector has just celebrated its 30^{th<\/sup> anniversary.<\/p>\n}

Worldwide, some US$5.4trn is being managed through more than 7000 different ETF products. Australia, while fast growing, only represents 0.7% of that market.<\/p>\n<\/p>\n

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n

FNArena is proud about its track record and past achievements: Ten Years On<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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