Our update on the Australian ETF market as at April 2016.
- Growth in funds under management (FUM) across all ASX listed ETFs was 3% for the month, from $20,585M in February 2016 to $21,299M by the end of March 2016.
- Australian shares regained some popularity relative to international share ETFs after the Australian dollar rose strongly – reducing some of the short term appeal of global stocks.
- After two strong months, flows into Gold ETFs slowed as the metal took a breather. Bond and cash ETFs attracted the majority of defensive flows over the month.
- Perceived defensive sectors including property and consumer staples continue to outperform resources and attract the majority of sector-specific interest.
The Australian share markets rebounded at the start of March to get within a few percent of its highs for the year, before drifting lower towards the end of the month. Uncertainty in global share markets and a bounce in the Australian dollar led to a reduced appetite for global share ETFs.
More funds flowed into fixed income, cash and Australian share ETFs. The cash ETF (AAA) and dividend ETF (VHY) attracted strong inflows given their defensive characteristics. Both are now offered as Stockspot Themes.
|Sector||Total FUM Mar 2016 ($M)||Monthly change in FUM ($M)||Monthly change in FUM (%)|
|Global Shares (broad market)||7,855||53||+1%|
|Australian Shares (broad market)||6,036||387||+7%|
|Australian Shares (strategies)||2,042||124||+6%|
|Fixed Income and Cash||2,192||160||+8%|
|Australian Shares (sectors)||1,373||51||+4%|
|Global Shares (sectors)||664||-12||-2%|
Total funds under management in ASX listed ETFs regained the $21 million level first reached in October 2015.
Of the large issuers, Vanguard and BetaShares attracted the majority of fund inflows for the month as investors flocked to defensive ETFs such as BetaShares’ AAA and Vanguard’s VHY. iShares lagged due to its tilt towards global share ETFs.
Smaller issuers such as UBS and ANZ enjoyed double-digit growth for the month. Perth Mint’s outflow can be explained by the fall in the gold price during the month after two strong months of gains.
ETF Securities was impacted by gold’s decline and the delisting of 10 of its commodity ETFs that had failed to attract investor interest. The total FUM within the 10 delisted ETF Securities ETFs was only $3.4M. This is one of the reasons we prefer the larger ETFs with more than $25m in FUM for our clients – since the smaller ETFs are more likely to be shut down due to investor disinterest.
Feb 2016 ($M)
Mar 2016 ($M)
|Monthly change in FUM|
Monthly inflows and outflows of funds were relatively small for March with no issuer attracting more than $200 million. Vanguard and BetaShares enjoyed the majority of new inflows with their Australian shares, sector and fixed income ETFs.
The share market’s recent volatility appears to have dampened investor sentiment with many investors having decided to sit on the sidelines. Returns were generally positive, with a better performance by most issuers compared to recent months.
in Mar 2016 ($M)
|Average Monthly Return
in Mar 2016 ($M)
Best and worst performers
Over the past 12 months defensive ETFs have enjoyed the largest gains, including the BEAR ETF (which aims to provide an inverse return to the Australian share market), several property ETFs and a global consumer staple ETF. Overall, gains have been modest with the top performers returning 11% compared to several 40%+ returns at the same point one year ago.
On the other hand, commodity ETFs have felt the brunt of a slowdown in emerging markets due with the strengthening US dollar and weakening of the Chinese currency. Oil and resource sector ETFs have fallen -25% to -44% for the year.
The volatility in China’s share market is now apparent in one-year returns, with the Chinese share ETF (IZZ) reversing its position as a top five performer at this time last year. In last years ETF Report we wrote about the danger of chasing 1-year returns and this has indeed proved true with Chinese shares falling from a top performer to a bottom performer over 12 months. We also wrote about mean reverting returns in our blog ‘Investment traps to avoid‘.
|ASX code||ETF name||Total FUM
Mar 2016 ($M)
|1-year total return|
|BEAR||BetaShares Australian Equities Bear (Hedge Fund)||62||11%|
|VAP||Vanguard Australian Property Securities Index ETF||582||11%|
|SLF||SPDR S&P/ASX 200 Listed Property Fund||623||11%|
|MVA||Market Vectors Australian Property ETF||52||8%|
|IXI||iShares S&P Global Consumer Staples||149||7%|
|OOO||BetaShares Crude Oil Index ETF-Currency Hedged (Synthetic)||47||-44%|
|GEAR||BetaShares Geared Australian Equity Fund (Hedge Fund)||71||-28%|
|OZR||SPDR S&P/ASX 200 Resource Fund||19||-25%|
|QRE||Beta Shares S&P/ASX 200 Resources Sector ETF||5||-25%|
|IZZ||iShares FTSE China Large-Cap||75||-23%|
Increases and decreases in FUM
Investors preferred Australian shares in March, which took four of the top five places by fund inflows. Australian property’s continued strong returns, dividend shares and the safety of cash in AAA also attracted funds. Despite some stabalisation in markets, investors are still attracted to the relative safety of ‘high yield’ and defensive sectors over resources.
Weakness in the US dollar transpired into outflows from the S&P 500 ETF (IVV), US Dollar ETF (USD) and S&P Global Healthcare ETF (IXJ), which had all been star performers over 3 years. Many of the strong trends from the past 3 years have shown signs of reversing in March with strength in Gold and Emerging markets and signs of weakness in the US Dollar, US Shares and some defensive sectors.
Instead of trying to guess which asset or sector is about to perform well (which is notoriously difficult), we encourage clients to instead take a long-term approach and build a strong portfolio that is diversified across many assets, sectors and countries to reduce risk. This has once again proven a sensible strategy over 2015/16 with all of the Stockspot Model Portfolios outperforming the broad Australian share market while experiencing significantly lower risk over that period.
|ASX code||ETF name||Monthly change in FUM ($M)||1-year total return|
|Increases in FUM|
|VAS||Vanguard Australian Shares Index||160||-9.6%|
|SPDR||SPDR S&P/ASX 200||127||-10.0%|
|AAA||Betashares Australian High Interest Cash ETF||111||2.5%|
|VHY||Vanguard Australian Shares High Yield ETF||42||-15.5%|
|VAP||Vanguard Australian Property Securities Index ETF||31||10.7%|
|Decreases in FUM|
|IVV||iShares Core S&P 500||-46||0.5%|
|GOLD||ETFS Physical Gold||-32||3.3%|
|USD||BetaShares U.S Dollar ETF||-21||-0.8%|
|IXJ||iShares S&P Global Healthcare||-17||-9.9%|
|IEU||iShares S&P Europe||-13||-10.4%|
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)
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