The Australian ETF industry has continued its strong growth trajectory, with a record number of self-directed investors, SMSFs and financial planners now using ETFs in Australia, according to the BetaShares/Investment Trends Annual ETF Report for 2018.
The Report is the leading quantitative research study of the Australian ETF industry. Based on responses of approximately 8,000 investors and 800 financial planners, the study contains insights into the size and growth of the ETF industry as well as the investment behaviour and preferences of these audiences.
According to the Report, investor numbers in the Australian market reached 385,000, up from 314,000 the year before (22 per cent year on year growth). The Report forecasts the industry to grow to over 430,000 investors by end 2019. The number of investors holding ETFs through an SMSF rose to 120,000, from 105,000 the year before. That said, SMSF ETF investors as a per cent of the total investor population declined from 33 per cent in 2017, to 31 per cent in 2018, highlighting the even faster growth in the number of investors who are utilising ETFs outside of SMSFs.
“We have continued to see a trend towards ETFs becoming far more mainstream in this year’s ETF Report. Investors continue to be attracted to the ease of access, diversification benefits and cost-effectiveness of ETFs. In addition, investors we have surveyed cite the ability to access overseas markets as a key reason for choosing ETFs as an investment vehicle,” says BetaShares Chief Executive, Alex Vynokur.
The last five years has seen a significant shift in the profile of a typical ETF investor, with the industry continuing to draw in younger investors, with 29 per cent of ETF investors now classified as millennials, versus 19 per cent five years ago.
“The ETF industry has continued to grow and mature in Australia, and we are seeing a marked decline in the age of the average investor as ETFs become more mainstream,” adds Vynokur.
“We expect that the younger age demographic will remain a key driver of industry growth going forward, with ETFs likely to become the investment product of choice for this generation,” says Vynokur.
The Report illustrated a noteworthy focus on responsible investing by investors. For example, one in three ETF investors have already applied the concept of ESG in their investing over the last 12 months, and ~25 per cent of financial advisers have expressed interest in more education on socially responsible investing.
“From almost a standing start 4 years ago, there are now 11 ESG oriented ETFs trading on the ASX with almost AUD900 million in assets under management,” says Vynokur. “Given the high levels of interest we are experiencing in these products from our client base, we expect continued strong future growth in this area.”
Mirroring the growth from individual ETF investors, financial advisers’ use of ETFs grew to 53 per cent from 47 per cent, with an additional 16 per cent considering using ETFs in their practice over the next 12 months.
Half of those financial advisers who recommend ETFs to their clients indicate that they have seen their clients’ financial outcomes improve after recommending ETFs, and approximately 45 per cent of advisers state that using ETFs allow them to service a greater number of clients.
“Advisers are facing unique business challenges as we head further into 2019, with increased scrutiny on the costs of advice, transparency and client best interest duties. We predict ETFs to continue to be adopted by planners, along with greater uptake of ETF model portfolios as advisers seek to create efficiencies in their businesses, and lower costs for clients.”
The Report also illustrated the significant opportunity for advisers to get more involved in ETF investments for their clients. Only 21 per cent of investors indicated that an adviser played a role in their most recent ETF investment – a number that has remained relatively stable over the last 3 years.
The rate of ETF adoption in Australia is predicted to continue, with 116,000 ‘next wave’ investors planning to invest in ETFs in the next 12 months. Furthermore, the reinvestment rate of ETF investors remains at a high and stable level, with over half intending to make another ETF investment in the year ahead.
“Overall, our view is that Australia’s ETF industry is headed into another strong year for growth, and we could see the industry ending 2019 at AUD50-AUD55 billion in AUM,” says Vynokur.