Arian Neiron

The performance in share markets this year has driven strong flows into exchange traded funds (ETFs), with over $1 billion pouring into ASX-listed international ETFs, helping to drive the market capitalisation of the ETF sector in Australia towards $10 billion.

Flows into ASX-listed ETFs with international exposure, including broad-based and sector exposure, passed $1.1 billion in the 10 months to the end of November. Attracting the lion’s share of flows were ASX-listed ETFs with exposure to US equities.

According to data released by the Australian Securities Exchange (ASX), from February to the end of November 2013, the percentage of international assets held by ASX-listed ETFs rose from just 21.6% to 32.4%. This represents a 50% increase in international holdings.

Arian Neiron, Managing Director, Market Vectors Australia, said, “The big story has been that Australian investors are pouring money into global equity based ETFs particularly US equities this year to take advantage of the soaring market there, which has outperformed the Australian share market on renewed investor sentiment.

“The overall strength of the Australian dollar, while diminished lately, has made international assets much more affordable than a decade or two ago,” said Mr Neiron.

According to Mr Neiron, along with increased flows into international ETFs, investors are also buying into strategy-based and fixed-interest ETFs.

“Australian strategy-based ETFs, including high-yield or high-dividend funds, have become more popular in 2013. According to the ASX, they accounted for 11.2% of ASX-listed ETF assets as at November 30, a rise from 9% in January 2013. Flows into this asset class over the year have been $361.2 million, almost equalling flows into Australian sector and broad-based ETFs,” he said.

“We’ve also seen cash and fixed-interest ETFs become more popular, representing 5.1% of ETF assets by November 30, up from 4% in January, reflecting the desire by investors to control risk by spreading their investments into more defensive asset classes.

“At the same time, some ETFs have become less popular, including commodity ETFs, which represented just 6.1% of ETF assets as at November 30, 2013, down from 13% of ETF assets in January, so there has been movement back into equity ETFs at the expense of commodities, in line with rising share markets,” Mr Neiron said.

Jonathan Morgan, Business Development Manager ASX commented, “Australia’s ETF market has grown rapidly this year, due to an expansion in product offering – including ETFs that address issues such as withholding tax and the paperwork usually associated with investing in international ETFs – and because of increased demand from self-directed and SMSF investors for low-cost and simple to implement investment solutions.

“The ETF market is on track to reach the market capitalisation milestone of $10bn funds under management,” Mr Morgan said.

Mr Neiron commented, “Market Vectors is developing a range of ASX-listed ETFs purpose-built for Australian investors to access new investment opportunities and diversify their portfolios into both local and international assets.”

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