Australian ETF investors get younger as the fast-growing industry enters the mainstream

From
Alex Vynokur

Alex Vynokur

Leading Australian ETF Manager, BetaShares, in partnership with research specialist Investment Trends, release findings of their annual ETF Report.

ETF assets under management and investor numbers in Australia continue to grow strongly, as the industry shifts further into the mainstream market, according to the BetaShares/Investment Trends Annual ETF Report 2017.

The ETF Report is the leading quantitative research study of Australian ETF investors. Based on responses of around 6,000 investors and 500 financial advisers, the study contains insights into the size and growth of the ETF industry and looks into the investment behaviour of retail investors, SMSFs and financial planners.

The Report indicates that investor numbers in the Australian market reached 314,000 in September 2017, up from 265,000 the year before (18% year-on-year growth).

“We are seeing Diversification, low cost, and access to overseas markets are the three top drivers for investing in ETFs among SMSF and individual investors. In addition, investors cite liquidity and convenience as other key reasons for choosing ETFs as an investment vehicle.

The Report reveals that most of the industry’s growth is a result of new money into the wealth management industry rather than a substitute for other investment structures. 60% of current ETF investors invested new funds into ETFs, rather than decreasing their current allocations to shares or managed funds.

ETFs: SMSFs remain key supporters, but other investor categories growing fast

The number of investors holding ETFs through an SMSF increased (by 5,000 compared to the year before) to 105,000, meaning that approximately 1 in 6 SMSFs are now investing in ETFs. That said, in aggregate, SMSF ETF investors as a % of the total market declined from 38% in 2016 to 33% in 2017. This proportional decline is due to an increase in the number of self-directed investors who are utilising ETFs outside of SMSFs (+44,000).

Millennials switch on to ETFs

The Report illustrates the marked change in demographics that is occurring amongst ETF investors as the industry becomes younger, and more mainstream.

While the early adopters of ETFs were older, more sophisticated investors, this demographic is changing rapidly. The average age of those who started investing in ETFs in the last 12 months is now 42, significantly younger than an average age of 56 among those who started investing in ETFs more than five years ago.

The Report also found that almost one third of ‘next wave’ investors (defined as those planning to invest in ETFs in the next 12 months), are millennials who appear to be particularly interested in ETFs as part of their investment strategy.

By way of illustration, when looking at those clients who use online brokers to invest, 38% of millennials currently use or intend to use ETFs in the next year, compared to 32% of Gen X investors and 27% of those in the Baby Boomer generation.

BetaShares Chief Executive Officer, Alex Vynokur, said: “The ETF industry has continued to grow and mature in Australia, and this year we are seeing evidence of a marked change in the type and age of investors as it becomes more mainstream” […] a new age group looking to invest their money outside of term deposits and individual stocks, with ETFs being the investment product of choice for this generation,” said Mr Vynokur.

“This generation of investors is redefining ‘blue chips’, with traditional ASX market darlings giving way to global technology, healthcare and sustainability leaders.”

“The combination of the historically low interest rate environment in Australia and low levels of affordability for residential housing is causing millennial investors to think in new ways about investment and wealth creation. Low cost, small minimum investment size, diversification and convenience are the key factors behind the popularity of ETFs in that market segment.”

Growth opportunities for Financial Planners

Financial Planners are now adopting ETFs in a meaningful way, with the Report showing that approximately 60% of Australian financial planners are currently recommending ETFs or intending to do so within the next 12 months.

Planners who currently recommend ETFs typically invest 17% of new client money in them, and are expressing an intention to increase this allocation over time – with this number set to increase to 20% by 2020.

The key motivations for planners recommending ETFs remains similar to those of end investors; low cost, diversification, liquidity, access to specific overseas markets, and access to specific types of investments/asset classes.

While financial planner ETF usage is high, there remains a significant opportunity for financial planners to get more involved in the ETF market, with only one in every four investors saying a financial planner was involved in their most recent decision to invest in ETFs.

2018 outlook

BetaShares predicts the Australian ETF market will reach $40-45B in funds under management in 2018, growing by at least 30% year-on-year.

“It is an exciting year ahead for the ETF industry, and we expect to see its rapid growth continue, following in the footsteps of other more mature ETF markets such as the US and Canada” added Mr Vynokur.

Key findings

  • The number of ETF investors in Australia grew 18% in the 12 months to September 2017; reaching 314,000
  • ETF investors are getting younger: the average age of those who started investing in ETFs in the last 12 months is now 42, significantly younger than the average age of 56 among those who started investing in ETFs more than five years ago
  • The ETF market has significant potential for further growth with the number of “next wave” ETF investors reaching record highs. Almost one third of these investors are Millennials
  • SMSF trustees, the early adopters of ETFs, comprise 33% of ETF investors
  • While SMSF usage of ETFs remains strong, there is increasing adoption by self-directed non-SMSF investors
  • Diversification, cost-effectiveness and access to overseas markets are the top drivers of investing in ETFs
  • Approximately 60% of Australian financial planners recommend ETFs or intend to do so within the next 12 months

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