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Cerulli reports on rapid growth of Aussie ETF market

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Research and consulting firm Cerulli Associates reports that Australia’s ETF market is booming, thanks to investors’ needs for diversification, push by financial planners, and demand from the self-managed superannuation fund (SMSF) and millennial segments.

Cerulli quotes BetaShares’s figures that reveal that in November 2017, total funds under management for ETFs listed on the Australian Securities Exchange (ASX) hit a record AUD35.5 billion (USD27.8 billion), reflecting 44.2 per cent year-on-year growth in market capitalisation and 6 per cent for the month alone.

Net new inflows into ETFs also set a new record, at AUD1.3 billion for November. Six new products appeared during the month, bringing the total number of exchange-traded products available on the ASX to 222. The compound annual growth rate of this market since 2004 now stands at a remarkable 31 per cent, with most of the growth having taken place since 2012.

Cerulli cites several drivers. “Firstly, retail investors in recent years have been looking for diversification, ease of access, and low cost – all of which are provided by ETFs. ETFs are extremely popular among the SMSF segment, where investors eschew commercially managed superannuation (pension) funds and instead opt to go it alone. Millennials are also gravitating toward products that combine low cost, simplicity, and ease of use. Some providers target this group with specific themed ETFs, such as those geared toward technology, cybersecurity, or sustainability.

“Among financial planners, changes in the remuneration structure mean that they are now being paid on a fee-for-service basis, meaning they are in theory product agnostic. In this environment, planners are happier to recommend ETFs as the building blocks of a portfolio. Planners also like them because they are very simple to explain and they fulfil an obvious role in the portfolio cheaply, efficiently, and with ample liquidity.”

Cerulli believes that there is likely to be more product supply and innovation. Institutional engagement in this market is also expected to rise, with Cerulli hearing of more and more professional institutions – including investment banks – using ETFs, and not necessarily for passive purposes, but also as an active thematic position. These factors, combined with ETFs’ relatively low attrition rate, make the space one to watch out for, the firm says.

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