Investors rush back to equities in Q4 as ETF market breaks records in 2019
14 January: The Australian ETF market surpassed AUD $61b in assets under management (AUM) with record inflows for 2019 reaching over $13.7b according to the latest figures released by the Australian Stock Exchange (ASX) and Vanguard.
ETF industry inflows for 2019 far outpaced the $8.0b and $6.4b received in 2017 and 2018 respectively, with ETF assets growing at a compound annual growth rate of over 23 per cent for the past five years.
When commenting on the increasing popularity of ETFs, Minh Tieu, Vanguard’s recently appointed Head of ETF Capital Markets for Asia Pacific, attributed it to more investors than ever before embracing the benefits.
“Investors faced challenging market conditions in 2019, with the simmering US and China trade war, Brexit, the Australian federal election, all the while trying to digest the findings of the Royal Commission, said Mr Tieu.
Despite these geopolitical conditions, more investors continued to embrace the benefits of ETFs, spurring growth in the market and increased competition among issuers that have in turn driven down the cost to invest, allowing investors to keep more of the returns they earn.”
Global equities was the favoured asset class of Q4, with investors allocating $1.4b which saw an increase of 85 per cent from Q3 ($809m). Australian equities attracted over $1.2b of inflows in the final quarter of 2019, more than the combined $912m received in the first six months of the year, reflecting growing investor confidence in the local market according to Mr Tieu.
“Following a slow start to the year, cash flows into Australian equity ETFs returned to more normal levels during the December quarter, potentially reflecting the outcome of investors putting to bed their fears from the market volatility experienced earlier in the year.”
Despite the Reserve Bank of Australia making three interest rate cuts across five months, bringing the cash rate to its lowest ever levels, fixed income continued to attract significant investor interest throughout the year. Investors placed $2.9b into Australian fixed income and $968m into global fixed income products for the year, over a quarter (27 per cent) of total cash flow for 2019.
“While fixed income products do not generally deliver high returns when compared with other investment products, they can play a crucial role in most investors' portfolios by providing diversification, and income and downside protection,” said Mr Tieu when discussing the steady inflows.
“We are pleased to see that even with record low interest rates, investors continued to invest funds into fixed income products across the year and understand the important role fixed income plays in a diverse portfolio.”
Last year was also a year of record growth for Vanguard ETFs, with Vanguard ETF AUM growing to $19.5b and inflows surpassing $5.1b, making 2019 Vanguard’s strongest year since the launch of their first ETFs 10 years ago.
In 2019 Vanguard launched the Vanguard Global multi-factor active ETF, adding to its growing range of factor products and bringing the total number of ETFs to 29, all of which finished the year with positive returns.
“ETFs are a vehicle that investors can use to build diverse portfolios across multiple asset classes. Vanguard’s ethos is built around providing a range of products that help investors diversify their portfolios at a low cost, and we encourage a long-term strategy to enable investors to achieve their financial success,” said Mr Tieu.
As at 31 November 2019, Vanguard ETFs totalled AUD$1.7 trillion globally, and, in Australia, Vanguard continues to be the largest ETF manager.