Australia’s ETF industry is expected to continue its rapid growth trajectory in 2019, driven by investor demand, product innovation and the evolving requirements of advice models, according to BetaShares’ annual predictions.
This year to November, the Australian ETF industry continued its growth trajectory, finishing the month at AUD41.1 billion, up from AUD35.5 billion in 2017 and in line with BetaShares’ 2018 predictions made in late 2017.
“It’s been a year of exciting new milestones for the industry, the growth and adoption of ETFs by investors and advisers being just one of these,” says BetaShares’ CEO, Alex Vynokur.
“More investors are recognising the benefits of ETFs, including the ability to diversify portfolios, lower costs and access opportunities in international sectors which have historically been hard for Australians to access.”
Adoption of ETF model portfolios is predicted to increase, as advisers seek to create efficiencies in their businesses and lower costs for clients, and as more ETF strategists, investment consultants, portfolio construction specialists and robo advisers enter the market.
2018 has seen a significant rise in the number of advisers and investors seeking to implement expert portfolios via models.
“We’re seeing an increase in demand for model portfolios and asset allocation services, particularly from advisers and dealer groups who can use such services to offer efficient and cost-effective access to diversified investment portfolios, at much lower costs for clients than had been previously available”, said Vynokur.
It is becoming increasingly understood in the Australian market that the combination of low-cost index building blocks and active asset allocation can result in a compelling investment solution that delivers value for both the end client and the adviser.
The adoption of ASX-traded fixed income funds is expected to rise significantly in 2019, signalling changing sentiment from investors looking to position portfolios more defensively.
“Australian investors typically hold an underweight exposure to fixed income, although, with growing market volatility, investors are starting to increase allocations to fixed income as a defensive shield for their portfolios,” said Vynokur.
In addition, the growing number of Australians reaching retirement age means that defensive asset classes such as fixed income will continue to benefit from increased allocations.
Product innovation is also predicted to continue, after this year’s significant growth in the BetaShares Australian Bank Senior Floating Rate Bond ETF (QPON) and the recent launch of Australia’s first fixed income Active ETF, the BetaShares Legg Mason Australian Bond Fund (managed fund) (BNDS), which offers investors access to an actively managed bonds portfolio via the ASX.
“Fixed income has long been an overlooked allocation, primarily due to access issues. ETFs are reducing barriers to adoption across a variety of different asset classes, including fixed income,” says Vynokur.
A record number of thematic ETFs were launched during 2018 and have experienced strong take-up to date. This trend is predicted to continue into 2019.
BetaShares continues to see strong demand for its funds offering access to a range of global growth themes, including global cybersecurity (HACK), global healthcare (DRUG) and global robotics and artificial intelligence (RBTZ).
At the same time, the bellwether BetaShares Nasdaq 100 ETF, NDQ, has seen a record year of inflows in 2018. Together, the technology range has combined assets of over half a billion dollars as at 30 November.
“More recently, valuations in the Asian technology sector have become more attractive which has underpinned a strong period of growth in the adoption of the Asian Technology Tigers ETF (ASX: ASIA), which allows investors to access a portfolio of the largest Asian tech companies at once,” says Vynokur.
Overall, Australia’s ETF industry is headed into another strong year for growth.
“The growth of the ETF industry in Australia has been impressive in recent years, and we predict it will continue on this trajectory in 2019. We expect the ETF industry to end 2019 at AUD55-60 billion”.