Australian ETF industry matures with 31% annual growth in investors: BetaShares/Investment Trends ETF Report


Alex Vynokur

Key findings:

  • The number of ETF investors in Australia grew at an annualised rate of 31% in the 12 months to September 2016
  • Younger investors are increasingly embracing ETFs – with the average age of ETF users dropping by 20 years since 2011
  • 38% of ETF investors invest via an SMSF – with usage growing strongly
  • 70% of planners currently recommend ETFs or intend to do so in the future.
  • Strong interest by advisers in using Active ETFs

The number of Australian investors using exchange traded funds (ETFs) has grown at an annualised rate of 31% to a record number of 265,000, up from 202,000 the previous corresponding year, according to the BetaShares/Investment Trends ETF Report (the Report) released yesterday.

The Report is the leading quantitative research study of Australian ETF users, based on responses of close to 9,000 investors and 592 financial advisers. The Report contains insights about the size and growth of the ETF industry in the 12 months to September 2016, including insight into the investment behaviour of retail investors, SMSFs and financial planners.

While a third of ETF investors are retired and investors are on average 51 years old, the Report revealed younger investors are embracing ETFs. For example, the average age of an investor who invested in ETFs for the first time in the last year is currently 39 years. This is a dramatic reduction from the average age of 58 years for investors who first started using ETFs five years ago.

Furthermore, millennials are expected to be significant drivers of future ETF growth. The proportion of online platform investors who currently use or intend to use ETFs in the coming year is split: 37% of millennials, 31% of Gen X, 28% of baby boomers.

BetaShares Managing Director, Alex Vynokur, said: “The ETF industry continued its strong growth path in 2016, and exchange traded funds have become increasingly mainstream”.

“No longer a niche investment vehicle, ETFs now provide low-cost, liquid and transparent access to a diverse range of asset classes and exposures”.

Strong demand from retail and SMSF investors

Repeat investment into ETFs is very high with 70% of investors indicating they would consider re-investing in ETFs in the next 12 months.

Interestingly, the majority of investments into ETFs represents new money into the industry, with 56% of current ETF investors buying the products with incremental investment monies, rather than decreasing their allocation to direct shares or managed funds.

The number of SMSFs holding ETFs has grown in line with the increase in the number of ETF users, with 38% of ETF investors holding ETFs through their SMSFs. This highlights the continued importance of this investor class in driving industry growth.

SMSFs who use ETFs typically cite a wider range of reasons for using them, especially for access to overseas markets and access to specific investment types.

Diversification remains the primary driving factor – with 77% of SMSFs ranking this as the main reason they use ETFs.

Financial planners can tap into client demand for ETFs

Usage of ETFs is widespread among financial planners, with 7,500 or 43% of Australia’s financial planners currently advising on ETFs. This number looks set to grow with 7 out of 10 planners currently recommending ETFs or intending to do so in the future.

Financial planners who do use ETFs have an increasingly large appetite for the products, with those who currently recommend ETFs using the products more extensively for new inflows and planning to continue to grow their use.

In terms of usage, financial planners cited low cost as the primary reason they use ETFs, with diversification coming second.

There remains significant opportunity for advisers to tap into consumer demand for ETFs, with only 21% of investors using ETFs saying an adviser played a role in their most recent ETF investment.

Advisers also have a strong interest in actively managed ETFs with 52% of respondents indicating they would like to use them in the next 12 months.

The Report projects that a record number of 315,000 investors intend to make an ETF investment in the next 12 months.

“The ETF industry is set to continue on its growth path, and is following in the footsteps of more mature ETF markets around the world”.

“One of the most dynamic investment vehicles available, we are confident that investors will continue to tap into ETFs for a broader range of investment needs. In line with the growth we are currently seeing, we project the industry will hit $30-33 billion in funds under management, with approximately 250 exchange traded products, by the end of 2017,” concluded Mr Vynokur.

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