Cerulli Associates’ Singapore office reports that with over 300 ETPs listed and showing overall positive net new flows, Australia’s ETF market is becoming more entrenched and diversified.
In 2021, the market cap of ETFs in Australia grew 44 per cent year-on-year to AUD136.9 billion (USD99.3 billion), according to Betashares. Much of that was market performance as stock markets recovered from the shock of COVID-19, but AUD232 billion of it was net new money, the highest annual flows into the sector on record. Notably, flows did tend to focus on the bigger, established names: Vanguard, BetaShares, and iShares received 75 per cent of the industry’s flows between them.
Cerulli writes that even in difficult market conditions, new products are appearing—five new products were launched in August 2022 alone, taking the total listed the Australian Securities Exchange (ASX) as of September 2022 to 304. The increasingly diversified market is now sufficiently sophisticated to offer much more than purely long-only options. In September, for example, the best-performing products were leveraged short funds, which would not have existed in the sector’s early days. In other months, certain specialist commodity ETFs have shone, Cerulli says. In August they included a global uranium ETF, for example. However, more niche products such as those based on solar or bitcoin have not yet raised significant assets.
While the market is diversified, it is still heavily dominated by equity products, according to the report. Assets have dropped dramatically from USD67.2 billion in equity at the end of 2021 to USD58.5 billion by September 2022 but these products are still worth more than all other asset classes put together.
Equity products also dominate net new flows, and based on the first nine months of 2022, the figure is likely to be similar to the USD12.1 billion of net new flows into equity products recorded in far more benign market conditions in 2021, Cerulli notes.
Looking ahead, short-term flows are likely to depend on market movements.
“At the time of writing, there was a sense of optimism that US inflation may have peaked, and that other markets will follow. That has led to a bounce in global equities, though it remains to be seen if it will be followed by a further dip as many states are likely to encounter recession in 2023.
“When there is widespread conviction that a bottom has been reached, ETFs are likely to experience positive traction as a way for investors to get cheap exposure to a broad market without the uncertainty of stock-picking. Meanwhile, inflows into fixed-income products are likely to increase as investors find that asset class more rewarding than has been the case for many years,” Cerulli writes.
“Investors’ continued preference for low-cost products indicates a promising outlook for the ETF sector, even if there is a sense that new product launches are becoming too niche,” says Ken Yap, managing director, Asia with Cerulli. “With so many products now available, consolidation of assets in existing products rather than the pressure to keep launching something new could become a priority.”