Alex Vynokur

The growth of the Australian exchange-traded product (ETP) market accelerated in July to break through $12B in assets under management, reaching a new record high of $12.2 billion, according to the BetaShares Australian ETF Review – July 2014.

Funds under management increased by over $500 million – or 4.6% – during the month; driven by $300 million of new net inflows as well as the strong performance of Australian and global stock markets in July.

Alex Vynokur, Managing Director of BetaShares, said: “The rise in funds under management of about $500 million over the course of July needs to be considered in the context of the increase through the first half of 2014, which was $1.7 billion. The rate of growth has accelerated.”

Local investors are increasingly realising that ETFs provide access to diverse asset classes, and not just Australian equities. During July, developed global equities was the sector that received the most inflows – more than $130 million. Cash and high yield equities were the next most supported sectors.

The most popular product by inflows in July was the BetaShares Australian High Interest Cash ETF (AAA), which has been the product experiencing the highest level of inflows in the calendar year to date.

 “Several trends are evident,” Mr Vynokur said. “As was the case through the first half of the year, investors continue to seek yield. It is also likely that some investors saw the general softness of stock markets outside Australia during July as a buying opportunity. Most crucially, though, investors are increasingly using ETFs as a flexible and cost effective solution to diversify their portfolios across different asset classes.”

As the attractiveness of ETFs is becoming more widely recognised, the trading values are increasing. Trading value increased by 19.2% in July relative to June – representing the highest level of ETF trading (by value) for 12 months.

Looking ahead, Mr Vynokur noted that that the growth in funds under management was expected to continue. “Over the last few weeks, we have seen the pace of expansion accelerate, and this has been largely driven by increased investment in existing products. Looking forward, we anticipate that this growth will be bolstered as new and innovative products are brought to market through the remaining months of 2014.”

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Alex Vynokur

The Australian exchange traded product (ETP) industry set another record high as total assets for the industry grew approximately 3% this month to $11.4 billion, an increase of $354 million, according to BetaShares Australian ETF Review for May 2014.

Importantly, almost 70% of the growth was attributable to new money flows, not asset price increases, suggesting new investors are continuing to add ETPs to their investment portfolios. May also represents the fourth consecutive month where new money inflows were greater than $200 million.

“The last four months inflows exceeded the total amount of new money raised by the industry during the 2012 calendar year. The increased level and consistency of inflows during recent months reinforces the notion that ETPs have become an increasingly mainstream vehicle to implement investment decisions,” said Alex Vynokur, Managing Director of BetaShares.

Despite investors continuing to adopt ETPs, the industry welcomed only its third new fund for 2014 with the first geared fund launched on the ASX during May. This compares with the last two calendar years where a total of 36 new products were launched.

“We have seen product growth momentum slow recently indicating a maturing market with all core asset classes now available on the ASX. However, we still believe there are product gaps to fill for Australian investors when compared with more developed international markets and believe this slower product growth is only temporary,” said Mr Vynokur.

May inflows were strong across a broad range of domestic equities products, high yield and the Cash ETF. Net outflows were limited this month and primarily involved selling out of emerging markets equities exposures which were also the best performing products in May.

“We are beginning to see a greater level of sophistication among investors using ETPs. This month saw profit taking in emerging markets ETPs after prices rallied during the month, which challenges a false perception that ETPs are “buy and hold” investments only,” he concluded.

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Equity ETFs and ETPs gathered the largest net inflows with $11.6 billion, followed by fixed income ETFs and ETPs with $1.3 billion, and active ETFs and ETPs with $1.1 billion, while commodity ETFs and ETPs experienced net outflows with $4.9 billion.

Year to date through end of February 2013, ETFs and ETPs have seen net inflows of $49.1 billion.  Equity ETFs and ETPs gathered the largest net inflows year to date with $45.1 billion, followed by fixed income ETFs and ETPs with $2.8 billion, and leveraged inverse ETFs and ETPs with $2.5 billion, while commodity ETFs/ETPs had net outflows of US$5.3 billion.

“The flows into equity ETFs and ETPs show investors are rotating out of cash and fixed income into equities as investor confidence continues to improve,” says Deborah Fuhr, Managing Partner at London-based ETFGI.

In February, equity ETFs and ETPs had net inflows of $11.6 billion. North American equity ETFs and ETPs gathered the largest net inflows $6.6 billion, followed by developed Asia Pacific equity indices with $3.4 billion, and global (ex-US) equity $1.8 billion, while emerging market equity ETFs and ETPs experienced the largest net outflows with $1.4 billion.

The global ETF industry had 3,345 ETFs, with 7,660 listings, assets of $1.86 trillion, from 180 providers on 54 exchanges at the end of February 2013. Including ETFs and other ETPs, at the end of February, the global ETF and ETP industry had 4,764 ETFs and ETPs, with 9,799 listings, assets of $2.04 trillion US dollars, from 209 providers on 56 exchanges.

Vanguard gathered the largest net ETF and ETP inflows in February with $5.95 billion, followed by iShares with $4.23 billion and WisdomTree with $2.16 billion net inflows.

S&P Dow Jones has the largest amount of ETF and ETP assets tracking its benchmarks with $518 billion, reflecting 25.4% market share; MSCI is second with $440 billion and 21.5% market share, followed by BarCap with $182 billion and 8.9% market share.

The top 100 ETFs and ETPs, out of 4,764, account for 59.6% of global ETF and ETP assets. 296 ETFs and ETPs have greater than $1 billion in assets, while 63.3% of all ETFs and ETPs have less than US$100 million in assets, 54% have less than $50 million in assets and 28% have less than $10 million in assets.

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Year to date through end of November 2012, ETF and ETP assets have increased by 23.8% from US$1.5 trillion to US$1.9 trillion.

Over the past 10 years the global compounded annual growth rate (CAGR) of these products has been 30.2%.  There are currently 4,726 ETFs and ETPs, with 9,719 listings, assets of US$1.9 trillion, from 208 providers on 56 exchanges.

With the outcomes of the US elections and super storm Sandy known, and a sense among investors that a solution to the looming fiscal cliff will be negotiated, US$9 billion was invested into ETFs and ETPs providing exposure to US equity indices, reversing nearly all of the outflows during October.

Overall, US$ 21.3 billion of net new money went into ETFs and ETPs in the month of November.  Looking year to date through end of November 2012, ETFs and ETPs saw net inflows of US$223 billion, US$69 billion above the level of net new assets at this time last year. Equity ETFs and ETPs have gathered the largest net inflows accounting for US$127 billion followed by fixed income ETFs and ETPs with US$61 billion and commodity ETFs and ETPs capturing US$22 billion.

“We are likely to end 2012 with a record level of assets in ETFs and ETPs and with a record level of net new assets invested into the products during the year” according to Deborah Fuhr, Managing Partner at ETFGI.

Equity focused ETFs and ETPs have gathered US$127 billion which is US$36 billion more than all of last year. Products providing exposure to North American equity indices have been the most popular receiving US$62 billion, followed by emerging market equity with US$38 billion and Asia Pacific equity with US$9.6 billion.

Fixed Income ETFs and ETPs have proven to be very popular tools this year with US$61 billion in net new assets, gathering US$16 billion more than all of last year. Corporate bond products have gathered the largest net inflows with US$24.5 billion, followed by high yield with US$14 billion.

Commodity flows at US$22.5 billion are US$5.5 billion above this time last year. Precious metals have gathered the largest net inflows with US$19.8 billion, while agriculture experienced the largest net outflows with US$1.4 billion.

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