ETF market lifts off, with more upside growth to come

Australia’s fledgling Exchange Traded Fund (ETF) market represents a shining light in an otherwise sluggish post-GFC market for the wealth management sector.

While traditional managed funds have struggled for headway in recent times, ETFs have shown strong growth of 70 per cent per annum over the past three years, albeit off a low base.

New brands and categories have also emerged in Australia, helping to secure a healthy future for ETFs, particularly considering a strong uptake by Self Managed Super Funds (SMSFs).

This is the view of leading wealth management strategy and product specialists Tria Investment Partners (Tria), which today released a comprehensive ETF research report “Lift off: the Australian ETF market gains altitude“.

The research was commissioned and prepared for four primary issuers of ETFs in Australia: State Street Global Advisors, iShares Australia, Vanguard Investments Australia and Russell Investments.
Tria Managing Partner Andrew Baker says the rise of ETFs in Australia mirrors a global trend, where the category now accounts for assets worth in excess of $1.3 trillion, largely domiciled in the United States and Europe.
“The Australian ETF market is a relative minnow, but there are very encouraging signs for our local market. Investor appetite for simpler, more transparent, liquid, direct investment products is on the up. This, coupled with an ability to capture the attention of SMSFs, will see ETFs continue to find favour, in Tria’s view,” he said.
Tria said the continued success of the sector would also require further market education for investors and their advisers, particularly noting:
  • ETFs ability to make important contributions to investor portfolios thanks to low costs, liquidity, and tax efficiency
  • A need for investors to understand the important differences between unlisted managed funds and ETFs
  • Significant differences exist between various types of ETF structures, with regulators very focused on synthetic ETFs
Tria noted recent public commentary on ETFs, related to perceived product complexity.
“However, much of the noise surrounding ETFs relates to exotic products which account for a very low percentage of ETF assets.  The facts are that the overwhelming majority of ETF assets relate to straightforward exposures to Australian and overseas shares, offering investors and their advisers a robust yet inexpensive new tool to construct their portfolios,” Mr Baker said.

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