What a year for Exchange Traded Funds (ETFs)!!
After 12 years since they first became available in Australia, the ETF market hit 10 billion dollars at the end of 2013, according to the Australian Stock Exchange (ASX). While this pales in comparison to the developed US market of 1.5 trillion dollars, it does show the growing popularity of these products for Australian investors. Starting with only 1 ETF that tracked the ASX 200, there are now more than 90 that invest across bonds, shares, property, gold and international securities.
ETF’s are one of the fastest growing investment products on the market due to their low cost and diversification benefits. They behave like any other shares but when you buy an ETF you’re buying a broad selection of stocks depending on your personal goals.
One of the big reasons why they were so successful in 2013 was the drop in the Australian dollar against other currencies and the support from financial advisors and SMSF investors. Its predicted adviser usage will grow and there will be increasing demand from institutional investors which will fuel further expansion for these securities. Their strength has come at the expense of the managed investment funds which have struggled to compete with ETF on management fees. As more SMSF and retail investors become cost aware and want full transparency, the ETF business will continue to grow rapidly.
The Future of Financial Advice (FOFA) regulatory laws banning commission on financial products sold have recently changed, giving ETF’s a wanted to boost in 2013.
In 2013 the ETF business took in about 2.4 billion dollars, up 180% from 2012. The 2013 commodity sector was the major underperformer (mainly due to gold) with 10.4m value lost and the general selloff of fixed income had a negative impact on some ETF. International equities, however emerged as the key theme of the year with 1 billion of funds flowing into exposure to developed equities.
The other predominant theme for the year was the search for yield which saw 500 million dollars of new money flow into high yield products and 200 million dollars flow into the high interest cash ETF.
Commenting on the outlook for 2014 Alex Vynokur for Beta Shares said ‘“We saw investors and advisers continue to adopt ETFs as portfolio construction and trading tools as they become increasingly mainstream. We believe the industry is poised to maintain its fast momentum this year, and expect to see total funds under management at $14 billion with over 100 exchange traded funds on the ASX by the end of 2014.”
More information on investment funds can be found in RateCity's Investment Funds Guide.