Aussie ETF firm BetaShares, with research specialist Investment Trends, have found that Australian ETF investors get younger as the fast-growing industry enters the mainstream.
Their annual report reveals that the number of ETF investors in Australia grew 18 per cent in the 12 months to September 2017; reaching 314,000 and that ETF investors are getting younger: the average age of those who started investing in ETFs in the last 12 months is now 42, younger than the average age of 56 among those who started investing in ETFs more than five years ago.
The firm says that the Australian ETF market has significant potential for further growth with the number of ‘next wave’ ETF investors reaching record highs. Almost one third of these investors are Millennials, the report found.
Australian self-managed super fund (SMSF) trustees, the early adopters of ETFs, comprise 33 per cent of ETF investors and there is increasing adoption by self-directed non-SMSF investors.
Diversification, cost-effectiveness and access to overseas markets are the top drivers of investing in ETFs for Aussies, while approximately 60 per cent of Australian financial planners recommend ETFs or intend to do so within the next 12 months.
The BetaShares ETF Report is based on responses of around 6,000 investors and 500 financial advisers, the study contains insights into the size and growth of the ETF industry and looks into the investment behaviour of retail investors, SMSFs and financial planners.
The Report reveals that most of the industry’s growth is a result of new money into the wealth management industry rather than a substitute for other investment structures. Some 60 per cent of current ETF investors invested new funds into ETFs, rather than decreasing their current allocations to shares or managed funds.
The number of investors holding ETFs through an SMSF increased (by 5,000 compared to the year before) to 105,000, meaning that approximately one in six SMSFs are now investing in ETFs. That said, in aggregate, SMSF ETF investors declined from 38 per cent in 2016 to 33 per cent in 2017. This proportional decline is due to an increase in the number of self-directed investors who are utilising ETFs outside of SMSFs (+44,000).
BetaShares Chief Executive Officer, Alex Vynokur (pictured), says: “The ETF industry has continued to grow and mature in Australia, and this year we are seeing evidence of a marked change in the type and age of investors as it becomes more mainstream”
a new age group looking to invest their money outside of term deposits and individual stocks, with ETFs being the investment product of choice for this generation,” says Vynokur. “This generation of investors is redefining ‘blue chips’, with traditional ASX market darlings giving way to global technology, healthcare and sustainability leaders.”
“The combination of the historically low interest rate environment in Australia and low levels of affordability for residential housing is causing millennial investors to think in new ways about investment and wealth creation. Low cost, small minimum investment size, diversification and convenience are the key factors behind the popularity of ETFs in that market segment.”
Financial Planners are now adopting ETFs in a meaningful way, with the Report showing that approximately 60 per cent of Australian financial planners are currently recommending ETFs or intending to do so within the next 12 months.
Planners who currently recommend ETFs typically invest 17 per cent of new client money in them, and are expressing an intention to increase this allocation over time – with this number set to increase to 20 per cent by 2020.
The key motivations for planners recommending ETFs remains similar to those of end investors; low cost, diversification, liquidity, access to specific overseas markets, and access to specific types of investments/asset classes.
While financial planner ETF usage is high, there remains a significant opportunity for financial planners to get more involved in the ETF market, with only one in every four investors saying a financial planner was involved in their most recent decision to invest in ETFs.
Looking forward, BetaShares predicts the Australian ETF market will reach AUD40-45 billion in funds under management in 2018, growing by at least 30 per cent year-on-year.
“It is an exciting year ahead for the ETF industry, and we expect to see its rapid growth continue, following in the footsteps of other more mature ETF markets such as the US and Canada” adds Vynokur.