Our quarterly update on the Australian ETF market as at October 2016.
- ASX-listed ETFs have added $10 billion in new funds under management since October 2014, representing 31% p.a. growth.
- Quarterly growth of ETF funds under management was 7%, from $22,404M in June 2016 to $23,971M by the end of September 2016.
- After some volatility in the first half of September, the Australian share-market stabilised near a 12 month high.
- Gold and small Australian shares have performed best over the last year with oil, ‘Bear’ and some currency ETFs performing worst.
- Fixed income ETFs continued to attract new funds at the fastest rate of all sectors as more investors and Self Managed Super Funds (SMSFs) add fixed interest to their portfolios to balance equity risk.
The past 3 months have seen very strong growth in the ETF market, despite periods of high volatility largely due to political events. The impact of the upcoming US election, Brexit, China’s patchy growth and uncertainty around US rates have led to significant moves in bond and share markets around the world.
Notwithstanding, ETF funds in Australia grew 7% over this 3-month period to a new record. Investors continue to embrace ETFs as an attractive alternative to actively managed funds and direct shares. The download of our free 2016 ETF Report has more than doubled compared to last year and reflects growing interest in ETFs. We have also seen the largest quarter of growth at Stockspot, which suggests that our automated investment service is contributing to the growth of the Australian ETF market.
|Sector||Total FUM Jun 2016 ($M)||Total FUM Sep 2016 ($M)||Quarterly change in FUM (%)|
|Global shares (broad market)||8,205||8,658||+6%|
|Australian shares (broad market)||6,251||6,718||+7%|
|Fixed Income & cash||2,138||2,442||+14%|
|Australian shares (strategies)||2,169||2,413||+11%|
|Australian shares (sectors)||1,561||1,546||-1%|
|Global shares (sectors)||768||840||+9%|
ETF fund growth was positive for all sectors, apart from Australian shares (sectors), which had a minor decline in funds due to poor performance in property ETFs. Fixed income, Australian shares (strategies) and global shares (sectors) had the strongest growth in new money.
The new ETFs that launched this quarter reveal a focus on offering international and sector exposures.
BetaShares launched 5 new global sector ETFs to give investors options ranging from cyber-security to agriculture. ANZ added a European stock market ETF and Magellan launched another managed fund centred around infrastructure. In a partnership with AMP Capital, BetaShares also launched 2 actively managed listed funds – GLIN and DMKT.
|New ETFs in the September quarter 2016|
|MICH||Magellan Infrastructure Fund (Currency Hedged)
|MNRS||BetaShares Global Gold Miners ETF – Currency Hedged|
|HACK||BetaShares Global Cybersecurity ETF|
|FOOD||BetaShares Global Agriculture Companies ETF|
|DRUG||BetaShares Global Healthcare ETF – Currency Hedged|
|BNKS||BetaShares Global Banks ETF – Currency Hedged|
|ESTX||ANZ ETFS EURO STOXX 50 ETF|
The new ETFs launched this quarter are predominantly in sectors that have performed well recently – particularly infrastructure, gold, tech and healthcare. We caution against participating in newly launched ETFs on the basis that they have generated strong ‘past’ results as this often reverses when they list and previously popular sectors go out of favour.
Reference index changes
An ETFs that launched during the height of the mining boom was abandoned by its issuer this month, reflecting the lack of investor interest in resources at the moment. Until July 2016, MVE was the VanEck Vectors Australian Emerging Resources ETF and tracked the MVIS Australia Junior Energy & Mining Index.
In July this year it was renamed the VanEck Vectors S&P/ASX MidCap 50 ETF and its reference index was changed to the S&P/ASX Midcap 50 Index. Anyone who invested in this ETF to get access to resource companies would now need to sell and find another ETF. Given that sectors tend to come in and out of fashion, it is unfortunately that VanEck Vectors have abandoned this ETF and what’s more likely to be the trough of relative performance for resources.
We see this as a danger of owning ETFs in niche sectors, particularly when managed by some of the smaller ETF managers. It’s also a danger of chasing sectors with strong recent performance since during a period of weaker performance, ETFs issuers may stop supporting these ETFs as this example shows.
All of the ETFs we offer as part of Stockspot Themes are in large, liquid and broad market areas with very low risk of being closed or reference indices changing. This is not the first time a reference index has been changed – earlier this year UBS abandoned its research-based indices and switched 2 of its ETFs over to Morningstar indices.
The ETF issuers almost all showed positive additions of new money.
Smaller issuers, including UBS, VanEck Vectors and ANZ grew at double-digit rates in the past month off smaller bases. Vanguard continues to dominate on the larger end of the spectrum and is fast catching up to iShares as the largest ETF issuer in Australia. BetaShares has also done well with its range of niche ETF products.
Jun 2016 ($M)
Sep 2016 ($M)
|Quarterly change in FUM|
Best and worst performers
Gold’s popularity continued in the September quarter, while a recent bounce in commodity prices has supported VanEck Vectors Resources ETF. BetaShares’ Geared US Equity Fund Currency Hedged (Hedge Fund) has benefitted from currency movements and the US stock market’s continued strong performance. Australian small companies have also provided high returns, with 2 ETF’s tracking the S&P/ASX Small Ordinaries index being top performers.
The negative returns of BetaShares’ bear hedge fund ETFs reveal the positive performances of the US and Australian stock markets and highlight the danger of owning ‘inverse’ ETFs which benefit from market falls. Over the long-run these products are likely to lose money for investors.
BetaShares has 4 ETFs in the bottom group, which include 2 inverse ‘Bear’ ETFs, an oil ETF and pound ETF. The other poor performing currency over the last year has been the Renminbi.
|ASX code||ETF name||Total FUM
Sep 2016 ($M)
|1-year total return|
|GDX||VanEck Vectors Gold Miners ETF||46||84%|
|GGUS||BetaShares Geared US Equity Fund Currency Hedged (Hedge Fund)||4||35%|
|SSO||SPDR S&P/ASX Small Ordinaries Fund||11||29%|
|ISO||iShares S&P/ASX Small Ordinaries ETF||51||27%|
|MVR||VanEck Vectors Australian Resources ETF||6||27%|
|BBUS||BetaShares US Equities Strong Bear Currency Hedged (Hedge Fund)||59||-34%|
|BBOZ||BetaShares Australian Strong Bear (Hedge Fund)||104||-29%|
|OOO||BetaShares Crude Oil Index ETF-Currency Hedged (Synthetic)||47||-26%|
|POU||BetaShares British Pound ETF||15||-21%|
|ZCNH||ANZ / ETFS Physical Renminbi ETF||1||-10%|
Winners and losers
Investors rotated back into Australian shares over the past quarter as markets stabilised. SPDR S&P/ASX 200 (STW) reclaimed its position on top after recently reducing its fees to compete with Vanguard’s Australian Shares ETF (VAS).
Australian property ETF (SLF) led the list of losers with $31 million leaving the fund as investors rotated out of sectors that had performed well recently like property and healthcare and started buying resources again.
|ETF name code||Total FUM Jun 16 ($M)||Total FUM Sep 16 ($M)||Quarterly change in FUM ($M)|
|Increases in FUM|
|SPDR S&P/ASX 200 (STW)||2,918||3,104||186|
|Vanguard Australian Shares Index ETF (VAS)||1,544||1,709||165|
|Vanguard Australian Fixed Interest Index ETF (VAF)||427||547||120|
|Magellan Global Equities Fund (Managed Fund) (MGE)||549||648||99|
|Dividend Harvester Fund (Managed Fund) (HVST)||211||294||83|
|Decreases in FUM|
|SPDR S&P/ASX 200 Listed Property Fund (SLF)||663||632||-31|
|iShares S&P Europe ETF (IEU)||550||526||-24|
|Vanguard MSCI Index International Shares ETF (VGS)||293||270||-23|
|BetaShares Geared Australian Equity Fund (Hedge Fund) (GEAR)||68||52||-16|
|iShares S&P Global Healthcare ETF (IXJ)||427||415||-12|
S&P/ASX200: An index of Australia’s largest 200 companies by market capitalisation.
Bear hedge fund: A hedge fund designed to provide higher returns as the market falls, it may track the inverse of an index as an ETF.
Exchange trade fund (ETF): An open-ended investment fund that is traded on a stock-exchange. ETFs provide direct exposure to a wide range of investments in their asset class such as Australian shares, international shares, bonds or metals.
Broad market ETFs: Track the widest range of securities in the market that has been selected.
Sector ETFs: Track sectors within a market. (e.g. property, financials or resources)
Strategy ETFs: Only include some securities in the market. Securities are selected according to certain rule-based factors (e.g. dividend yield or research rating)
Exchange Traded Managed Fund (ETMF): These securities trade on the ASX like an ETF, but the funds are actively managed by the issuer instead of passively tracking a rules-based index.
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