Down Under ETFs break industry records
The Australian ETF industry broke records in both funds under management and trading activity in 2016, despite the high levels of market volatility and uncertainty in the broader macro environment, according to the BetaShares Australian ETF Review – End of Year Review 2016.
Assets in the Australian ETF industry rose by AUD4.4 billion (or 21 per cent) in 2016 to hit a new all-time record high of AUD25.8 billion, up from AUD21.4 billion at the end of 2015.
BetaShares reports that approximately 80 per cent of this increase can be attributed to new money, while the remaining 20 per cent of the total growth was driven by asset value appreciation, an indication of the underlying growth in the industry irrespective of market movements.
In the last month of 2016, the Australian ETF industry added AUD1.2 billion of assets or 5.0 per cent monthly growth. BetaShares Geared Australian Equity Fund (hedge fund) (ASX: GEAR) and European Equities ETFs were the best performing products in December according to BetaShares.
In terms of trading, the ETF industry reached AUD22 billion of traded value throughout the year, marking a record trading activity for the industry.
Industry flows were highly concentrated, with the two leading issues by inflows, Vanguard and BetaShares, attracting 85 per cent of the industry’s net inflows.
The year was also a strong year in terms of product development, with 40 new funds launched through 2016. The past year also saw 11 product closures.
Commenting on the success of ETFs in 2016, BetaShares managing director Alex Vynokur says: “Exchange traded funds continue to grow strongly in Australia.
“The increasingly dynamic nature of the Australian market is also in line with the growth trend of the global ETF industry, which received a record high of USD389 billion in net inflows in 2016, and now totals some USD3.5 trillion in funds under management.”
Passive products captured the bulk of net flows in Australia, with a market share of 89 per cent of the total, which included an impressive 25 per cent of the net inflows in ‘smart beta’ products.
The new active exchange traded products received 11 per cent of the net inflows (or AUD400 million), a good result given the newness of this product category, BetaShares says.
“The first exchange traded active fund in Australia was launched in 2015. So far, the take up of this product category has been robust,” says Vynokur.
“We expect both active exchange traded products and the smart beta ETFs to continue to grow in popularity as new products are launched and the industry matures,” he adds. International equities products attracted the largest amounts of new money over the year with AUD1.1 billion of net inflows, followed by Australian equities at AUD900 million.
With AUD700 million of net inflows, the fixed income category also shined in 2016, particularly in Australian Bonds, BetaShares says.
“The strong inflows in fixed income is also a highlight for the ETF industry, considering that this product category has historically been a laggard.
“In terms of outflows, overall they were low, with European equities products receiving the highest level of outflows as investors became cautious after the Brexit referendum,” says Vynokur.
“We believe the industry will continue to grow strongly in 2017, and we forecast total industry FUM to be in the range of AUD32 and AUD35 billion by the end of this year and approximately 230 funds trading by year end,” says Vynokur.