Our quarterly update on the Australian ETF market as at December 2016 and performance of the Stockspot portfolios.
ETF market highlights
- Quarterly FUM growth was +7%, from $23,971 million at the end of September to $25,291 million at the end of December 2016.
- Total ETF FUM has now reached the $25 billion milstone, including adding almost $4.3 billion in 2016.
- The top 5 ETFs for the past 12 months have all been resources focused, reversing a 5 year period of underperformance since 2010.
- After some US election volatility, Australian and global share ETFs showed steady inflows during November and December.
- Overall we have seen another positive quarter for ETF FUM growth and returns, continuing the steady drive forward of the Australian ETF market.
- Globally investors have put more money into ETFs than actively managed funds in 2016 for the 10th straight year.
Source: Investment Company Institute, Simfund, Credit Suisse
Stockspot performance highlights
- Over the calendar year the 5 Stockspot model portfolios delivered returns of between 6.0% and 9.0% after fees. All of the portfolios generated a combination of capital return and dividend income.
- Stockspot’s careful ETF selection and broad asset diversification helped to smooth out short-term market movements and deliver another year of high quality returns.
- All of the Stockspot strategies comfortably withstood the Brexit and US election market jitters.
FUM growth was positive for all sectors apart from commodities and currency ETFs. Global share ETFs had the greatest inflows due to rebound in the US sharemarket, while Australian factor based ETF also led to strong inflows.
|Sector||Total FUM Sep 2016 ($M)||Total FUM Dec 2016 ($M)||Quarterly change in FUM (%)|
|Global shares (broad market)||8,658||9,401||+9%|
|Australian shares (broad market)||6,718||7,095||+6%|
|Fixed Income & cash||2,442||2,568||+6%|
|Australian shares (strategies)||2,413||2,681||+10%|
|Australian shares (sectors)||1,546||1,643||+6%|
|Global shares (sectors)||840||900||+6%|
The FUM fall from the commodity sector is largely due to a slowing in physical gold inflows after a strong first half of the year. In the currency sector, the decline was largely accounted for by outflows from BetaShares USD ETF.
The ETF issuers largely showed increasing FUM from inflows and the share market rally. Total growth was 7% this quarter, which was the same rate as last quarter. Of the majors, Vanguard and BetaShares continue to gain ground at the expense of SPDR and to a lesser extent iShares who have seen slower growth.
Small issuers, such as Magellan, VanEck Vectors and ANZ continued their high growth rates, whilst K2 continues to lose ground. The negative results for ETF Securities and Aurora, along with a very small increase for Perth Mint, reveals the slowdown in gold inflows over the past quarter. UBS’ outflows were largely from its IQ Morningstar Australia Quality ETF, which has had a dismal year after changing its reference index following significant underperformance.
Sep 2016 ($M)
Dec 2016 ($M)
|Quarterly change in FUM|
Best and worst performers
The Gold Miners ETF retained the top position for 12 month performance from last quarter. The recent resurgence in commodity prices has also helped BetaShares and SPDR resources ETFs joining the VanEck Vectors resources ETF in the top 5 this quarter. The top 5 performing ETFs for the calendar year were all commodity sector related ETFs – demonstrating the impact of mean reversion after a 5-year period of lacklustre returns.
The 2 worst performers held their positions from last quarter, showing that the positive performances of the US and Australian share markets continued to negate the benefits of bear (inverse return) funds. BetaShares’ third bear fund (BEAR) also entered this category this quarter. As we have said in the past, we don’t believe these ‘bear’ products are sensible long term investments and are not ETFs we consider in our portfolios. The uncertainty following Brexit meant that the Pound ETF has again had a negative quarter.
|ASX code||ETF name||Total FUM
Dec 2016 ($M)
|1-year total return|
|GDX||VanEck Vectors Gold Miners ETF||53||62%|
|MVR||VanEck Vectors Australian Resources ETF||10||42%|
|QRE||BetaShares S&P/ASX 200 Resources Sector ETF||14||42%|
|OZR||SPDR S&P/ASX 200 Resource Fund||28||41%|
|ETPMPD||ETFS Physical Palladium||2||30%|
|BBUS||BetaShares US Equities Strong Bear Currency Hedged (Hedge Fund)||47||-28%|
|BBOZ||BetaShares Australian Strong Bear (Hedge Fund)||84||-26%|
|CETF||VanEck Vectors China AMC A-Share ETF||2||-18%|
|POU||BetaShares British Pound ETF||36||-17%|
|BEAR||BetaShares Australian Equities Bear (Hedge Fund)||56||-11%|
Increases and decreases in FUM
The top 5 ETFs by FUM growth were all amongst the largest ETFs by FUM including 4 that are part of the Stockspot model portfolios or themes. We continue to support the large, liquid ETFs ahead of their smaller less liquid counterparts.
The UBS ETF lost majority of its FUM in the past month. It is one of the 2 that abandoned their research-based indices and switched over to Morningstar indices.
Gold’s popularity has turned around and investors have shifted back to focusing on equities. Similarly, the US Dollar ETF’s decrease in FUM is contrasted against the inflows into the US share market. Investors have moved their funds from SLF property fund to its competitor VAP, which has a fee that is 0.15% lower. The bear hedge fund BBOZ’s negative performance last quarter shows through the decline in FUM as a lagging indicator of performance.
|ETF name code||Total FUM Sep 16 ($M)||Total FUM Dec 16 ($M)||Quarterly change in FUM ($M)|
|Increases in FUM|
|iShares S&P 500 ETF (IVV)||1,938||2,106||168|
|Vanguard Australian Shares Index ETF (VAS)||1,709||1,855||145|
|BetaShares Australian High Interest Cash ETF (AAA)||937||1,049||112|
|Vanguard Australian Property Securities Index ETF (VAP)||714||812||97|
|BetaShares FTSE RAFI Australia 200 ETF (QOZ)||88||181||93|
|Decreases in FUM|
|UBS IQ Morningstar Australia Quality ETF (ETF)||64||10||-54|
|ETFS Physical Gold (GOLD)||477||436||-40.7|
|SPDR S&P/ASX 200 Listed Property Fund (SLF)||632||600||-32|
|BetaShares U.S Dollar ETF (USD)||551||529||-22|
|BetaShares Australian Strong Bear (Hedge Fund) (BBOZ)||104||84||-19.7|
The 5 new ETFs launched this quarter were ‘smart beta’ funds focused on multiple market factors, volatility and ex-20 shares.
|New ETFs in the December quarter 2016|
|WDMF||iShares Edge MSCI World Multifactor ETF|
|AUMF||iShares Edge MSCI Australia Multifactor ETF|
|MVOL||iShares Edge MSCI Australia Minimum Volatility ETF|
|WVOL||iShares Edge MSCI World Minimum Volatility ETF|
|EX20||BetaShares Australian Ex-20 Portfolio Diversifier ETF|
Several ETFs changed their fees in the past quarter. Three of them were from iShares and track the various size based market segments of the S&P index. Two gold ETFs changed fees marginally, QAU decreased fees by 0.1% to 0.39% and GOLD increased its fee by 0.01% to 0.4%.
|ETF fee changes in the December quarter 2016|
|QAU||BetaShares Gold Bullion ETF (AU$ Hedged)||-0.10%|
|IJH||iShares S&P Midcap ETF||-0.05%|
|IJR||iShares S&P Small-Cap ETF||-0.05%|
|IVV||iShares S&P 500 ETF||-0.03%|
|GOLD||ETFS Physical Gold||+0.01%|
Stockspot performance update
By having the right mix of assets and selecting ETFs that we believe are the best available based on our strict criteria and research, the Stockspot portfolios have generated returns of 6.6 to 9.6% p.a. since launch with realised risk (volatility) of 5.3% to 9.4% p.a. That compares to the Australian share market which has delivered an annual return of 6.2% with much higher risk of 13.7% over the same period.
Stockspot has also generated higher quality returns than many well known active funds that have a similar asset mix including the Colonial First State FirstChoice Growth Fund (Sharpe 0.53) and ANZ OA PS-OP Active Growth Fund (Sharpe 0.30).^
As discussed in our annual Fat Cat Funds Report, the high fees charged by many active funds pose a significant drag on each years returns and make it difficult for them to deliver better quality returns than their passive peers.
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.
^ 3 year Sharpe ratios from Morningstar as at 18/1/2017
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- 2016 : Stockspot end-of-year update