The Australian ETF industry expanded at an annualised rate of 31 per cent in the 12 months to September 2016, according to Betashares. The firm's report finds that younger investors are increasingly embracing ETFs – newer ETF users are significantly younger compared to early adopters and 38 per cent of ETF investors invest via an SMSF – with usage growing strongly.
The report also found that 70 per cent of financial planners currently recommend ETFs or intend to do so in the future and advisers exhibited strong appetite for actively managed ETFs.
The Betashares report is based on responses of close to 9,000 investors and 592 financial advisers.
BetaShares Managing Director, Alex Vynokur (pictured), says: “The ETF industry continued its strong growth path in 2016, and exchange traded funds have become increasingly mainstream.
“No longer a niche investment vehicle, ETFs now provide low-cost, liquid and transparent access to a diverse range of asset classes and exposures.”
Repeat investment into ETFs is very high with 70 per cent of investors indicating they would consider re-investing in ETFs in the next 12 months, the report found.
The majority of investments into ETFs represents new money into the industry, with 56 per cent of ETF investors buying the products with incremental investment monies, rather than decreasing their allocation to direct shares or managed funds.
The number of SMSFs holding ETFs has grown in line with the increase in the number of ETF users, with 38 per cent of ETF investors holding ETFs through their SMSFs. This highlights the continued importance of this investor class in driving industry growth.
SMSFs who use ETFs typically cite a wider range of reasons for using them, especially for access to overseas markets and access to specific investment types.
Diversification remains the primary driving factor – with 72 per cent of investors citing this as a reason for using ETFs.
Use of ETFs is widespread among financial planners, with 7,500 or 43 per cent of Australia’s financial planners currently advising on ETFs. This number looks set to grow with seven out of 10 planners currently recommending ETFs or intending to do so in the future, the report found.
More encouragingly, financial planners who do use ETFs are using these products more extensively for new inflows, and plan to continue to grow their use.
In terms of motivations for using ETFs, financial planners most often cite low cost as a reason for recommending these products, with diversification the second most commonly cited driver.
There remains significant opportunity for advisers to tap into consumer demand for ETFs, with only 21 per cent of current ETF investors saying an adviser played a role in their most recent ETF investment.
Advisers also have a strong interest in actively managed ETFs with 52 per cent indicating they would like to use these products in the next 12 months if available to them.
Looking forward, this report projects a record 315,000 Australians will be invested in ETFs by September 2017.
“The ETF industry is set to continue on its growth path, and is following in the footsteps of more mature ETF markets around the world.
“One of the most dynamic investment vehicles available, we are confident that investors will continue to tap into ETFs for a broader range of investment needs. In line with the growth we are currently seeing, BetaShares projects the industry will hit ASD30-33 billion in funds under management, with approximately 250 exchange traded products, by the end of 2017,” concludes Vynokur.
