Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 289

Australian ETFs: end of year reviews 2018

BetaShares: Shaken, not stirred!

  • Notwithstanding dramatic sharemarket volatility in the final few months of the year, the Global ETF industry recorded significant growth in 2018, receiving its 2nd highest ever level of net inflows (US$516B). In total the global industry ended the year at US$4.8T [ETFGI]. Total asset growth however was held back by significant asset value depreciation leading Global ETF assets under management to end up at approximately the same level as at end 2017.

  • Comparatively, the local ETF industry’s net flows were actually higher than the declines in asset values, leading the ETF industry to grow by 13%, (~$5B). In our view, given the prevailing environment, this is a very strong result and indicates the continued interest in the ETF product structure by investors even in the face of very volatile markets.

  • The Australian ETF industry’s funds under management ended the year at ~$41B, a touch below the record high of $42B set in September, (2017 year-end AuM, $36B)

  • As a result of sharp market falls at year’s end, 100% of the year’s industry growth came from net inflows, with $6.2B flowing into the industry over the course of the year. In a similar result to the global industry, this represents the 2nd highest annual flows on record (the highest being $7.8B, in 2017). Importantly, this strong ‘unit’ growth means that if and when asset prices recover, we will see some “bumper” growth months in the year ahead.

  • While asset growth and inflows were below record levels, the industry did break a meaningful record in 2018, with ETF Trading activity levels reaching a fresh record high, with trading value increasing 14% compared to 2017, and over $36B of value traded. We expect trading values to continue to trend upwards as ETFs become an increasingly mainstream way to express investment views.

  • Flows by ETF manager continued to be concentrated, and more so than last year, with the top two players (Vanguard and BetaShares) receiving 62% of the industry’s flow combined (compared to 56% for the top 2 players in 2017)

  • In terms of product launches, 2018 produced the 2nd highest number of new product launches on record, with 38 funds launched – compared to 31 new products launched in 2017 and 40 new products launched in 2016.

  • 7 products were closed in 2018, which is still a relatively small figure by global ETF standards. ETF issuers closing products were iShares and ETF Securities.

  • By inflows, passive products captured the bulk of flows with 88% share, however the Active ETF sector continued to grow its relative share with 12% of flows vs. 8% in 20171.

  • Within the passive category vanilla index-tracking funds once again dominated, with their share of flows remaining stable (78% of flows in 2018 v. 79% of flows in 2017), as did the share of flows in ‘smart-beta’ products (9% vs. 8% in 2017)2.

  • That notwithstanding, we expect both Active ETFs and ‘smart-beta’ exchange traded funds to continue to grow in popularity as new products are launched and the industry matures.

  • The categories of ETFs capturing the largest amounts of new money over the course of 2018 were relatively stable compared to last year. For the 4th year in a row, international equities products ranked #1 for inflows, with $2.9B of net inflows, followed by Australian equities at ~$1.5B. The fixed income category continued to grow at a rapid pace, with record flows to this category in 2018, picking up $1.3B in net flows (vs. $1.1B in 2017) and ranking 3rd in terms of asset category inflows. We believe it’s very possible that we could see this category grow to the #2 most popular category in 2019, given increased product innovation and a greater investor understanding of the role that fixed income can play in portfolios. Outflows were limited, with only two categories receiving net outflows, and both due to profit taking by investors given market conditions (U.S Currency ETFs and Short Funds)

  • The best performing products of 2018 were the Palladium ETF, followed by the Strong U.S. Dollar Hedge Fund (ASX: YANK) and Technology Equities oriented ETFs.

  • The declines in asset prices muted the growth of the industry and therefore the 2018 industry forecast we made in our end-year 2017 review was not reached (forecast of $47-$49B, actual ~$41B). That said, fundamental unit growth will continue to support the industry’s rise, with extraordinary growth possible should asset values recover.

  • We believe the industry will continue to grow strongly in 2019 – and forecast total industry FuM at end 2019 to be in the range of $50-$55B.

A copy of the BetaShares Australian ETF Review – End of Year Review 2018 is linked here.

 

Vanguard: Australian ETF market grows amid challenging investment environment

Australians have over $40 billion of their savings invested in exchange traded funds (ETFs) according to the latest figures released by the Australian Stock Exchange (ASX).

While volatile markets resulted in a slight decrease in total ETF funds under management through the fourth quarter of 2018, inflows across the calendar year saw the market grow by $4.7 billion, an increase of 13.2 per cent from 2017.

Industry wide cash flow was $6.44 billion for 2018. While this figure is down from $8.08 billion in 2017, ETF assets have grown at a compound annual growth rate of 32 per cent over the past five years.

Damien Sherman, Head of ETF Capital Markets said: “Continuing the trend of recent years, investors sought out ETFs that provided exposure to international equities, with the asset class attracting nearly half (49 per cent) of net cash flows in 2018.

“Despite the challenging investment conditions in 2018 investors continue to embrace the benefits of ETFs, spurring growth in the market, increased competition among issuers and rising trading volumes that have in turn driven down the cost to invest, allowing investors to keep more of the returns they earn.”

In 2018 Vanguard became Australia’s leading ETF issuer with $12.07 billion in funds under management at 31 December. It was the fourth consecutive year that Vanguard led the industry for net new cash flow representing 41.5 per cent of all ETF flows in 2018.

“Investors faced challenging conditions across global equity markets in 2018, highlighting the importance of diversification across asset classes and the enduring role that fixed income plays- especially as a ballast during periods of equity market volatility,” Sherman said.

It was a year of strong growth for Vanguard’s range of Diversified ETFs that broke new ground in the Australian ETF market by offering investors the ability to buy a well-diversified, low-cost product that rebalances automatically across a range of asset classes. The four diversified ETFs (Conservative, Balanced, Growth and High Growth) ended 2018 with $277 million in combined assets under management.

Vanguard’s range of Australian and International Fixed Income ETFs saw combined net cash flows in excess of $276 million across the year.

In 2018 Vanguard listed six new ETFs in Australia, including ESG and active offerings, bringing its total number of exchange-traded products to 28.


 

Leave a Comment:

     

RELATED ARTICLES

ETFs are the Marvel of listed galaxies, even with star WAR

$100 billion! Five reasons investors are flocking to ETFs

November 2020 was an historic month for ETFs

banner

Most viewed in recent weeks

10 little-known pension traps prove the value of advice

Most people entering retirement do not see a financial adviser, mainly due to cost. It's a major problem because there are small mistakes a retiree can make which are expensive and avoidable if a few tips were known.

Check eligibility for the Commonwealth Seniors Health Card

Eligibility for the Commonwealth Seniors Health Card has no asset test and a relatively high income test. It's worth checking eligibility and the benefits of qualifying to save on the cost of medications.

Hamish Douglass on why the movie hasn’t ended yet

The focus is on Magellan for its investment performance and departure of the CEO, but Douglass says the pandemic, inflation, rising rates and Middle East tensions have not played out. Vindication is always long term.

Start the year right with the 2022 Retiree Checklist

This is our annual checklist of what retirees need to be aware of in 2022. It is a long list of 25 items and not everything will apply to your situation. Run your eye over the benefits and entitlements.

At 98-years-old, Charlie Munger still delivers the one-liners

The Warren Buffett/Charlie Munger partnership is the stuff of legends, but even Charlie admits it is coming to an end ("I'm nearly dead"). He is one of the few people in investing prepared to say what he thinks.

Should I pay off the mortgage or top up my superannuation?

Depending on personal circumstances, it may be time to rethink the bias to paying down housing debt over wealth accumulation in super. Do the sums and ask these four questions to plan for your future.

Latest Updates

Investment strategies

Three ways index investing masks extra risk

There are thousands of different indexes, and they are not all diversified and broadly-based. Watch for concentration risk in sectors and companies, and know the underlying assets in case liquidity is needed.

Investment strategies

Will 2022 be the year for quality companies?

It is easy to feel like an investing genius over the last 10 years, with most asset classes making wonderful gains. But if there's a setback, companies like Reece, ARB, Cochlear, REA Group and CSL will recover best.

Shares

2022 outlook: buy a raincoat but don't put it on yet

In the 11th year of a bull market, near the end of the cycle, some type of correction is likely. Underneath is solid, healthy and underpinned by strong earnings growth, but there's less room for mistakes.

Gold

Time to give up on gold?

In 2021, the gold price failed to sustain its strong rise since 2018, although it recovered after early losses. But where does gold sit in a world of inflation, rising rates and a competitor like Bitcoin?

Investment strategies

Global leaders reveal surprises of 2021, challenges for 2022

In a sentence or two, global experts across many fields are asked to summarise the biggest surprise of 2021, and enduring challenges into 2022. It's a short and sweet view of the changes we are all facing.

Shares

What were the big stockmarket listings in record 2021?

In 2021, sharemarket gains supported record levels of capital raisings and IPOs in Australia. The range of deals listed here shows the maturity of the local market in providing equity capital.

Economy

Let 'er rip: how high can debt-to-GDP ratios soar?

Governments and investors have been complacent about the build up of debt, but at some level, a ceiling exists. Are we near yet? Trouble is brewing, especially in the eurozone and emerging countries.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.