The 2011 year was a watershed year for the Australian ETF industry, with ASX listed ETFs attracting over AUD500 million in net inflows, according to the BetaShares Australian ETF Review for December. The increase is particularly striking in that it came at a time when the general equity markets dropped significantly.

Assisting ETF inflows were the 14 new products listed over the course of 2011 bringing the total number of ETFs available to 59 with investors now able to access currency, commodities and small caps in ETF form for the first time.

The strong performance of the Australian ETF industry mirrored another strong year of ETF growth globally, and continued migration of investor capital from managed funds into ETFs. In the world’s largest ETF market, the United States, ETFs investing in US stocks experienced net inflows of AUD33 billion, compared to outflows of around AUD132 billion from comparable managed funds.

Net Australian ETF inflows in 2011 represented about 10% of total ETF assets at the start of the year, a growth rate of about 10 times that experienced by the Australian retail managed fund industry (in the year to September 2011).

Drew Corbett (pictured), Head of Investment Strategy at BetaShares said the inflows for the industry in 2011 were pleasing considering general market sentiment and the strong results point to a greater acceptance of ETFs in the Australian marketplace, as well as further strong growth in 2012.

“As product choice widens, investors are now increasingly considering ETFs when making strategic asset allocation decisions. We have seen this over the course of 2011 as the largest Australian equity ETF saw large redemptions while new money flowed into international ETFs, the US Dollar ETF and commodities such as silver and currency hedged gold,” says Corbett.

While the sector has been developing rapidly, there are still some key gaps when comparing Australia to international markets. Firstly, the lack of fixed income ETFs which is likely to be resolved in 2012 and secondly, the under utilisation of ETFs by institutional investors compared with overseas markets.

“Although the institutional market uptake of ETFs locally has been quite slow, BetaShares expects this to gradually change and be in line with US and European markets where institutions regularly trade ETFs in portfolios,” says Corbett.

In line with the general markets, December was a quiet month with net outflows of approximately AUD30 million and trading values muted compared with previous months.
“December is traditionally a slow trading month, not just ETFs. However, the strong inflows for the year during difficult conditions suggest demand for ETFs across various assets classes remains strong among investors and we expect this to continue in 2012,” says Corbett.