Australian ETFs add $10 billion in 2 years

ETF Update - Quarter 3, 2016
 
Our quarterly update on the Australian ETF market as at October 2016.

Highlights

  • 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.

ETF funds under management growth
Source: ASX

Sector

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%
Commodity 738 771 +4%
Currency 573 585 +2%
Total 22,404 23,971 +7%

Source: ASX

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.

New ETFs

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)
(Managed Fund)
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.

Issuers

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.

Issuer Total FUM
Jun 2016 ($M)
Total FUM
Sep 2016 ($M)
Quarterly change in FUM
iShares 7,068 7,351 +4%
Vanguard 5,504 5,982 +9%
SPDR 4,653 4,887 +5%
BetaShares 2,720 2,908 +7%
Russell 537 552 +3%
ETF Securities 529 541 +2%
Magellan 578 715 +24%
VanEck Vectors 417 523 +25%
UBS 192 262 +37%
Perth Mint 97 109 +13%
K2 58 60 -3%
ANZ 39 70 +78%
Aurora 13 13 +5%
Total 22,404 23,971 +7%

FUM Growth by Issuer
Source: ASX

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
Positive performance
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%
Negative performance
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%

Source: ASX

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

Source: ASX

Glossary

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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Chris Brycki

Stockspot Founder and CEO