Our quarterly update on the Australian ETF market as at September 2017.
ETF market highlights
- Quarterly growth for ETFs listed in Australia was 8.9%, from $29.3 billion at the end of June to $31.7 billion at the end of September 2017.
- The total size of global share ETFs listed on the ASX overtook Australian share ETFs for the first time. Global share ETFs continue to be embraced by Australian investors for better diversification in their portfolios.
- The latest report from S&P showed that 75% of Australian equity managers, 90% of Global share managers and 86% of Bond managers underperformed their respective benchmarks over the 10 years to 30 June 2017. This trend has continued to support evidence based investing using ETFs.
Despite markets going sideways, ETFs remained a popular choice for Australian investors this quarter with billions of dollars switching out of actively managed investments and into ETFs.
Total ETF funds in Australia has now reached the $30 billion milestone, including adding nearly $6.5 billion in 2017, an increase of 26%.
ETF fund growth was positive for all sectors, ranging from minor increases of 1% for currency and Australian strategy ETFs to 14% growth for fixed income ETFs. BetaShares’ QPON and VanEck Vectors’ PLUS have rapidly increased FUM due to the popularity of corporate bonds since their recent launches.
Investors in Australian share ETFs have also added $464m, with high inflows into the Vanguard Australian Shares Index ETF (VAS) and Vanguard Australian Shares High Yield ETF (VHY). We have been a supporter of the VAS product since 2013 and VHY is available as a Stockspot Theme. On the other hand there were outflows from the SPDR STW fund and BetaShares HVST which we have written about before.
Jun 2017 ($M)
Sep 2017 ($M)
|Quarterly change in FUM (%)|
|Global shares (broad market)||10,898||12,078||+11%%|
|Australian shares (broad market)||7,904||8,368||+6%|
|Fixed Income & cash||3,265||3,804||+17%|
|Australian shares (strategies)||2,915||2,939||+1%|
|Australian shares (sectors)||1,703||1,791||+5%|
|Global shares (sectors)||1,168||1,313||+12%|
Several new ETFs were launched this quarter:
ETF Securities has launched an infrastructure fund (CORE – ETFS Global Core Infrastructure ETF) tracking an index of low volatility infrastructure assets from developed countries.
A new robotics themed ETF (ROBO – ETFS ROBO Global Robotics and Automation ETF) targets companies involved with the emerging trends of robotics, automation and artificial intelligence.
Platinum Asset Management has now entered the ETP market by listing their flagship managed funds for global equities (PIXX – Platinum International Fund (Quoted Managed Hedge Fund)) and Asia (PAXX – Platinum Asia Fund (Quoted Managed Hedge Fund)) on the ASX.
VanEck’s FLOT (VanEck Vectors Australian Floating Rate ETF) seeks to piggyback off the demand for defensive bond index products.
These new products will be rated in our Australian ETF Report next year.
Global market ETFs (including broad market, strategy and sector) overtook Australian share market ETFs for the first time. This is noteworthy because it mirrors the underperformance of the Australian market over this period.
The main ETF issuers except SPDR all grew their assets. Total growth was 8.9% this quarter, after 7.4% growth last quarter.
Vanguard has continued its phenomenal growth as investors opt for its low fee options. Globally Vanguard has grown from managing US$4 trillion at the start of 2017 to US$4.7 trillion in September.
VanEck Vectors’ equal-weight Australian market ETF (MVW) and ‘quality’ global shares fund (QUAL), as well as its new corporate bond ETF (QPON) have also attracted new funds. SPDR continued to be left behind by iShares and Vanguard with BetaShares quickly catching up to 3rd place.
Jun 2017 ($M)
Sep 2017 ($M)
|Quarterly change in FUM|
Best and worst performers
Developed markets including the US, Japan and Europe dominated the top performers over 12 months. Precious metal ETFs lagged as share markets had a strong year.
|ASX code||ETF name||Total FUM
Sep 2017 ($M)
|1-year total return|
|GGUS||BetaShares Geared US Equity Fund Currency Hedged (Hedge Fund)||10||+39%|
|BNKS||BetaShares Global Banks ETF – Currency Hedged||56||+38%|
|HJPN||BetaShares WisdomTree Japan ETF – Currency Hedged||47||+32%|
|HEUR||BetaShares WisdomTree Europe ETF – Currency Hedged||48||+27%|
|ETPMPD||ETFS Physical Palladium||2||+25%|
|BBUS||BetaShares US Equities Strong Bear Currency Hedged (Hedge Fund)||72||-35%|
|GDX||VanEck Vectors Gold Miners ETF||62||-16%|
|ETPMPT||ETFS Physical Platinum||3||-16%|
|ETPMAG||ETFS Physical Silver||56||-15%|
|QAG||BetaShares Agriculture ETF-Currency Hedged (Synthetic)||3||-11%|
Increases and decreases in assets
ETFs gaining the most assets this year tracked large, well-known indices and tended to have low fees. Vanguard and iShares made up all of the top 5. Despite a relatively stable local share market, VAS continued to gain a substantial amount of funds, largely at the expense of STW.
iShares’ cash ETF (BILL) has had over $150m invested since its launch in June 2017.
Three of the top 5 gainers are ETFs we recommend as part of the Stockspot core portfolios or themes.
Four of the 5 ETFs with the largest declines in FUM have higher fees than VAS including the BetaShares HVST fund which we discussed in a previous article. HVST has delivered a total return of -6.1% over the past year compared to VAS at +8.8%. We continue to recommend clients avoid smart beta ETFs because they tend to follow in vogue style trends and don’t generate better risk adjusted returns over the long run.
|ETF name code||Total FUM Jun 17 ($M)||Total FUM Sep 17 ($M)||Quarterly change in FUM ($M)|
|Increases in FUM|
|Vanguard Australian Shares Index ETF (VAS)||1,945||2,429||484|
|iShares Core Cash ETF (BILL)||10||156||146|
|Vanguard MSCI Index International Shares ETF (VGS)||538||682||144|
|Vanguard All-World ex US Shares Index ETF (VEU)||871||986||114|
|iShares S&P 500 ETF (IVV)||2,212||2,310||98|
|Decreases in FUM|
|SPDR S&P/ASX 200 (STW)||3,480||3,300||-180|
|BetaShares Australian Dividend Harvester Fund (Managed Fund) (HVST)||441||346||-95|
|ETFS S&P/ASX 100 ETF (ZOZI)||32||10||-22|
|iShares S&P Global Consumer Staples ETF (IXI)||147||130||-17|
|BetaShares S&P/ASX 200 Financials Sector ETF (QFN)||27||17||-10|
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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