The Australian ETP industry will build on the momentum generated in 2016, with a growing audience of younger users, a proliferation of active exchange traded managed funds, and a broader range of smart-beta options as the trends to watch in 2017, says ETF manager BetaShares.
In 2016 so far, the exchange traded product industry has grown in FUM from USD21 billion to approximately USD25 billion, with 40 new funds launched, bringing the total number of products in Australia to 199.
“Exchange traded funds have cemented their position as a core part of many investors’ portfolios, and are increasingly being used by investors as a cost-effective, easy way to build balanced portfolios and or take tactical trading positions,” says BetaShares Managing Director, Alex Vynokur, (pictured).
“In many ways the industry has come of age in 2016, and continues to follow in the footsteps of more mature ETF markets around the globe.”
Listing his predictions for 2017, Vynokur opens with: Millennials an important driver of growth of industry.
“Accounting for almost a third of the global population, the millennial generation (those born between 1980 – 2000) are entering into their prime earning years and will soon be the largest client-base in the financial markets.
According to the Deloitte report ‘Millennials and wealth management’, millennials prefer self-directed investments, and they expect state of the art technological platforms that allow them to access investments quickly and easily throughout the investment cycle.”
“Exchange traded products are a perfect fit for a millennial audience. They are cost effective, allow investors to back their own views across a number of asset classes and investment strategies,” says Vynokur.
“In the more mature US market, the figures prove millennials are driving industry growth. According to Schwab’s 2015 ETF Investor Study, younger investors in the US are more likely than older ones to use ETFs: 41 per cent of millennials use ETFs, compared with 25 per cent of Gen Xers and only 17 per cent of baby boomers. Furthermore, 70 per cent of millennials see ETFs as the core investment type in their portfolio in the future.
“We are confident this trend will translate to Australia, and we are already seeing an increase in the number of product enquiries from millennials.
“The US trend towards ETF providers developing ETF model portfolios with automated distribution solutions could also play out in Australia – which would continue to empower millennials with innovative wealth management tools,” concludes Vynokur.
Prediction two: Active exchange traded managed funds will proliferate, according to Vynokur. BetaShares predicts the number of active exchange traded managed funds to grow substantially next year.
“Despite only accounting for 9 per cent of the industry’s funds under management, the active exchange traded managed funds sector has generated strong flows with just under USD1 billion invested to date,” says Vynokur.
“We expect active exchange traded managed funds to continue to grow significantly in 2017, as both investors and fund managers recognise the benefit of the exchange traded product structure.
Prediction three: More ‘smart beta’ products, says Betashares. “ETFs have evolved from market capitalisation index trackers to investment solutions that answer a broad range of investor needs,” says Vynokur.
“Smart beta products – or those not weighted based on the market capitalisation of their constituents – will be a product segment to watch in 2017 as more investors and advisers alike recognise the potential for these products to offer active-like returns for index-like costs.
“A number of smart-beta products have performed exceptionally well in recent times, with many offering returns significantly above both market-cap indices while also placed amongst top quartile active managers. With an increased focus on ‘value for money’ in investment products, we believe smart-beta is very well positioned.”
Across all predictions, growth remains a consistent theme, according to Vynokur. “The growth of the ETF industry in Australia has been phenomenal in recent years, and we predict it will continue on this strong trajectory in 2017, ending the year with USD30 – USD33 billion funds under management and approximately 250 exchange traded products,” says Vynokur.