Australian ETF industry powers ahead: BetaShares Australian ETF Half Year Review 2018

It’s been another strong six months for the Australian ETF industry.

H1 2018 finishes strong with the industry growing FuM by $3.2 billion

Australia’s ETF industry powered through another month of growth, finishing the first half of the year at a new record high of $39.2bn in funds under management, according to the BetaShares 2018 Australian ETF Half Year Review.

Total industry growth for the half was $3.2bn, the majority which came from net inflows as opposed to asset appreciation, with $2.7bn of net new money flowing into the industry over the six months.

Passive index products captured 77% of these inflows, while 16% of the flows came from Active ETFs – a sign that this relatively new category is starting to take hold in our market, with the expectation for continued growth in this category from both new Active ETF product launches, and growth of existing products.

BetaShares and Vanguard were the largest two issuers in the six-month period for net inflows, combining to receive over 50% of the industry inflows.

BetaShares CEO, Alex Vynokur, said: “It’s been another strong six months for the Australian ETF industry. This strong half reflects increased demand from investors and advisers who are seeing the benefits of owning exchange traded products. If this trajectory continues, we expect to see yet another record year of asset growth”.

International Equities dominating

At a category level, this year has so far been dominated by International Equities, which received the largest level of net flows ($1.4bn), a figure which was more than two and a half times the flows of the second category, Australian Equities (receiving $567m).

Fixed Income was the third largest category for flows, another category which continues to grow strongly, with investors clearly looking to diversify their portfolios away from equities and benefitting from increased Fixed Income product choice, whether fixed or floating rate bond products, cash, as well as access to hybrids via exchange traded products.

“While flows into equities ETFs remain strong, investors are still wary of how their assets are allocated, despite an improvement in the markets.  In particular, investor sentiment towards Australian equities remains mixed, illustrated by strong inflows into cash and fixed income products,” said Mr Vynokur.

Ethical investing proved a highly successful category so far this year – as an example, the Australian Equities – Ethical category receiving almost the same amount of net flows as the broader Australian equities category of ETFs ($130m v $135m).

“Responsible investing options are really moving into the mainstream, with particular interest from millennial investors. This is an area we expect to flourish given the attention investors are paying to aligning their values with their investments,” said Mr Vynokur.

Best performing products for the half year were BetaShares Crude Oil Index ETF – Currency Hedged (synthetic) (OOO) and BetaShares Global Cybersecurity ETF (HACK), which both recorded +20% performance.

Product development slows as industry matures

Product development has remained relatively slow this year, compared to previous periods. A total of 10 new products were launched in the six months, which contrasts with 14 in H1 2017.

There were also notable product closures during the six-month period, with iShares closing 5 ETFs – the largest product closure event in industry history to date by FuM.

“Compared to recent years, the pace of product development has plateaued, which reflects the increased maturity of the sector. However, we expect this level to increase as new products are released to market in the second half of the year,” Mr Vynokur added.

“Given the growth of the industry to date, we maintain the forecast we made at the end of last year and expect total industry FUM at end 2018 to be in the range of $47-$49bn,” said Mr Vynokur.

This half year also saw the launch of the world’s lowest cost Australian shares ETF[1]. The BetaShares Australia 200 ETF (ASX: A200) gives investors exposure to 200 of the largest ASX-listed companies with a management fee of only 0.07% p.a.

“We believe that the greater availability of simple, low cost ETFs like A200 will help drive the next wave of ETF industry growth and engage new audiences,” added Mr Vynokur.

Download BetaShares Australian ETF Review_Half Year 2018

[1] Source: Bloomberg, based on expense ratios of Australian shares ETFs traded in Australia or on overseas exchanges.