The Australian exchange-traded fund market recorded its highest ever annual growth in 2013, with funds under management increasing by USD3.5bn (55 per cent) to end the year at a new record high of USD10bn.
Over the course of 2013, ETFs took in approximately USD2.4bn of new money, up 180 per cent on 2012’s net inflows.
By comparison, retail managed funds achieved just an 18 per cent increase in net inflows in the 12 months to end September 2013.
Inflows were concentrated between three product issuers in the industry. iShares, Vanguard and BetaShares together accounted for 97 per cent of the total net inflows over 2013.
Alex Vynokur, managing director of BetaShares, says: “2013 was a hallmark year for the ETF industry, with funds under management continuing to reach new record highs.”
International equities emerged as the key trend for the year, with approximately USD1bn flowing towards funds offering exposure to developed equities markets. US equities funds were overwhelmingly the best performing products of 2013, with the top performing fund returning 66 per cent.
“The US equities markets continued to test record highs while the Australian currency weakened against the US dollar, leading to strong performance of currency unhedged equity ETFs tracking US markets,” says Vynokur. Small and mid-cap funds did particularly well, with three of the top five performing products being focused on US small and mid-cap stock exposures.”
The other prevalent theme for the year was the continued search for yield as USD500m of new money flowed into high yield products and another USD200m was allocated to the Australian High Interest Cash ETF.
“Despite the ASX rising sharply during 2013 and recording double digit capital growth, investors continued to remain focussed on yield for their portfolios, a trend we expect to continue into 2014,” he says.
Commenting on the outlook for the ETF industry in 2014, Vynokur expects sustained industry growth as all types of investors continued to embrace ETFs.
“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 USD14bn with over 100 exchange traded funds on the ASX by the end of 2014.”
Despite December being a traditionally quiet month, the ETF industry still managed to achieve solid growth, with around USD235m of new money flowing into the market.
“As the year drew to a close we saw a continuation of November’s trend towards domestic equities, with three of the top five products by inflows offering Australian share exposure,” says Vynokur. “This suggests investors are remaining bullish on domestic and international equities and executing risk-on trades.”