Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 238

3 predictions for Australian ETFs in 2018

The Australian exchange traded product (or Exchange Traded Fund – ETF) industry is set to grow significantly in 2018 based on the momentum of last year. As at end of 2017, Australian ETFs reached an all-time high of $36 billion, up from $25 billion in 2016. Investors increasingly recognise the ease with which ETFs can be used to diversify their portfolios, as well of their cost-effectiveness and transparency benefits.

Before we look at the prospects for 2018, here are some other highlights from 2017:

  • Annual new flows (net new money) reached a record $7.8 billion. The three largest issuers (Vanguard, iShares and BetaShares) attracted 72% of industry flows.
  • 226 Exchange Traded Products are listed on the ASX, with 31 new products opened and 3 closed or matured in 2017.
  • Trading volume increased by 41% over 2016 to reach $32 billion.
  • The traditional index-tracking ETFs remained dominant taking 79% of flows, with smart beta (13% of flows) and active (8%) raising the rest. The latter two grew strongly in dollar terms but low-cost tracking still appeals most.

As an indication that direct investors accept they are underexposed to global shares, international equities attracted the most inflows:

Also notable that fixed income did well, while only currency ETFs as a group experienced net outflows for the year.

Here are our predictions:

Prediction one: Millennials will continue to be an important driver of growth

Although investors of all types have embraced ETFs, millennials are attracted by the low cost and ease of use of ETFs, as well as the tailored exposure to investment themes that matter in their lives. In our product suite, for example, ETFs such as the Australian and Global Sustainability Leaders ETFs allow younger people to invest according to their values. Products such as the Nasdaq 100 ETF or the Cybersecurity ETF allow exposure to companies whose products resonate with their daily lives.

Market figures to bear out these trends, and according to CommSec, 25% of all ETF trades are now done by millennials. The diversification benefits of ETFs make them a good way to start investing in the sharemarket.

Prediction two: Greater innovation in bond ETFs

Fixed income has long been acknowledged as a good way to diversify a portfolio, but bond markets have historically been difficult for individual investors to access directly. In the last year in particular, there has been significant innovation in this space, with rapid growth in fixed income ETFs globally. With interest rates at record lows, ETFs give exposure to bonds that go beyond traditional fixed-rate exposure.

The recent launch of floating-rate bond ETFs offer a lower volatility alternative to traditional fixed-rate bond exposures as their interest payments adjust to reflect rises or falls in benchmark interest rates. This is particularly useful in a market where interest rates are rising, and floating rate ETFs appear well-placed to perform well given current interest rate expectations.

Beyond this particular style of fixed income investing, in 2018 more generally, we expect to see further innovation in fixed income ETFs, providing direct investors with much-needed access to lower risk, income-producing assets.

Prediction three: Active ETFs will grow in popularity

Last year saw the continuation of active ETF launches, giving investors more opportunity to diversify their portfolios alongside the passive ETF investments. Indeed, active ETFs offering access to a variety of active management strategies have the potential to match the growth of passive ETFs. For example, BetaShares recently launched the first active ETF with exposure to a professionally managed portfolio of Australian hybrids.

While we remain a strong advocate of passive investing, there are a number of asset classes and managers who can add value via active investing. For example, the complexities of hybrid securities and relative inefficiency of the hybrids market make investing in this asset class via a professionally managed fund vehicle a worthwhile alternative for many investors.

Across all predictions, growth remains the consistent theme

The growth of the ETF industry in Australia will continue on a strong trajectory, and we expect ETFs to reach $47-49 billion by the end of 2018.

 

Ilan Israelstam is Head of Strategy & Marketing at BetaShares, a sponsor of Cuffelinks. This article is general information and does not address the needs of any individual. Latest editions of BetaShares’ monthly ETF Review can be accessed here.

RELATED ARTICLES

The challenges of building a lazy portfolio

Global ETFs: insights into a multi-trillion-dollar industry

Australian ETFs: end of year reviews 2018

banner

Most viewed in recent weeks

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 606 with weekend update

The boss of Australia’s fourth largest super fund by assets, UniSuper’s John Pearce, says Trump has declared an economic war and he’ll be reducing his US stock exposure over time. Should you follow suit?

  • 10 April 2025

4 ways to take advantage of the market turmoil

Every crisis throws up opportunities. Here are ideas to capitalise on this one, including ‘overbalancing’ your portfolio in stocks, buying heavily discounted LICs, and cherry picking bombed out sectors like oil and gas.

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Latest Updates

Investment strategies

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Investment strategies

Does dividend investing make sense?

Dividend investing offers steady income and behavioral benefits, but its effectiveness depends on goals, market conditions, and fundamentals - especially in retirement, where it may limit full use of savings.

Economics

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

Strategy

Ageing in spurts

Fascinating initial studies suggest that while we age continuously in years, our bodies age, not at a uniform rate, but in spurts at around ages 44 and 60.

Interviews

Platinum's new international funds boss shifts gears

Portfolio Manager Ted Alexander outlines the changes that he's made to Platinum's International Fund portfolio since taking charge in March, while staying true to its contrarian, value-focused roots.

Investment strategies

Four ways to capitalise on a forgotten investing megatrend

The Trump administration has not killed the multi-decade investment opportunity in decarbonisation. These four industries in particular face a step-change in demand and could reward long-term investors.

Strategy

How the election polls got it so wrong

The recent federal election outcome has puzzled many, with Labor's significant win despite a modest primary vote share. Preference flows played a crucial role, highlighting the complexity of forecasting electoral results.

Sponsors

Alliances

© 2025 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. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. 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.