The Australian ETF industry broke records in both funds under management (FUM) and trading activity in 2016, despite the high levels of market volatility and uncertainty in the broader macro environment, according to the BetaShares Australian ETF Review – End of Year Review 2016.
FUM in the Australian ETF industry rose by $4.4 billion (or 21%) in 2016 to hit a new all-time record high of $25.8 billion, up from $21.4 billion at the end of 2015.
Approximately 80% of this increase can be attributed to new money, while the remaining 20% of the total growth was driven by asset value appreciation, an indication of the underlying growth in the industry irrespective of market movements.
In the last month of 2016, the Australian ETF industry added $1.2 billion of FUM (or 5.0% monthly growth).
For December, BetaShares Geared Australian Equity Fund (hedge fund) (ASX: GEAR) and European Equities ETFs were the best performing products.
Trading activity levels reach record highs
The ETF industry reached $22 billion of traded value throughout the year, marking a record trading activity for the industry.
Industry flows were highly concentrated, with the two leading issues by inflows, Vanguard and BetaShares, attracting 85% of the industry’s net inflows.
The year was also a strong year in terms of product development, with 40 new funds launched through 2016. The past year also saw 11 product closures.
Commenting on the success of ETFs in 2016, BetaShares managing director Alex Vynokur said: “Exchange traded funds continue to grow strongly in Australia.
“The increasingly dynamic nature of the Australian market is also in line with the growth trend of the global ETF industry, which received a record high of US$389 billion in net inflows in 2016, and now totals some US$3.5 trillion in FUM (1).”
Passive products capture bulk of net flows
Passive products captured the bulk of net flows in Australia, with a market share of 89% of the total, which included an impressive 25% of the net inflows in ‘smart beta’ products.
The new active exchange traded products received 11% of the net inflows (or $400 million), a good result given the newness of this product category.
“The first exchange traded active fund in Australia was launched in 2015. So far, the take up of this product category has been robust,” said Mr Vynokur.
“We expect both active exchange traded products and the smart beta ETFs to continue to grow in popularity as new products are launched and the industry matures,” he added.
International equities products ranked #1
International equities products attracted the largest amounts of new money over the year with $1.1 billion of net inflows, followed by Australian equities at $900 million.
With $700 million of net inflows, the fixed income category also shined in 2016, particularly in Australian Bonds.
“The strong inflows in fixed income is also a highlight for the ETF industry, considering that this product category has historically been a laggard.
“In terms of outflows, overall they were low, with European equities products receiving the highest level of outflows as investors became cautious after the Brexit referendum,” saidMr Vynokur.
Outlook for 2017
“We believe the industry will continue to grow strongly in 2017, and we forecast total industry FUM to be in the range of $32 and $35 billion by the end of this year and approximately 230 funds trading by year end,” saidMr Vynokur.
(1) ETGFI
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